For these stochastic measurements, we select two categories that generally compete: affordability and solvency. We measure “affordability” by comparing the amount of pension contributions from the state, as an employer, to the revenue from the state’s general fund budget (or GF-S). We measure “solvency” by determining how many future scenarios for our state pension plans result in “pay-go” (premature trust fund exhaustion) or result in a funded status below 60 percent. Improving one category can weaken the other. For more information on these measurements and the current status of the retirement systems, please see the
2021 Report on Financial Condition and Economic Experience Study. These select risk measurements provide a helpful and quick at-a-glance summary of the financial risks of the state pension plans. We believe these measurements assist stakeholders in the identification, measurement, and management of financial risks in the state’s pension plans. To that end, we believe the model and measurements provide the most value when monitored over time and when used to evaluate and understand why risks change over time (or how risks would change when considering a proposed revision to the pension system). We do not intend the Projections Model, or its numerical risk measurements, to represent forecasts or predictions for the underlying risks. Additionally, the values change each year with new experience and can also materially change with the use of different assumptions and methods. We also generate graphs for each risk metric that provide additional information on the likelihood, amount, and timing of a given risk based on the assumptions and methods we use in our model. Please see our
Risk Assessment Graphs webpage for more information. We will continue to update the risk assessment model and these risk measurements annually. Please replace the risk measurements in the future when a more recent set of measurements becomes available. If you would like additional information and background on the development of the original risk assessment, please see the
2010 Risk Assessment Report. If you would like additional information and background on other risks to the pension plans, please see the
Commentary on Risk. |