The assessment covered on this webpage represents one form of risk modeling – stochastic risk modeling. For more information and for other forms of risk modeling prepared by the Office of the State Actuary, please see the
Commentary on Risk webpage.
Assessing risk using stochastic modeling allows actuaries to demonstrate and assess the effect of unexpected experience on pension plans. For example, how does the volatility of annual experience impact our pension plans? How might below expected investment returns, lower than expected state revenue growth, or above expected inflation impact their financial risks? How could their affordability and funded status change in the future? Additionally, how do “past practices” in the areas of meeting funding requirements or enhancing benefit levels via legislation impact our pension plans if those practices continue?
To perform such risk assessments and answer questions like the ones above, we created a customized stochastic model and employ a range of assumptions that differ from the assumptions we use in our standard actuarial valuations. We review and update those assumptions regularly. For more information on the underlying assumptions used in our most current model, please see the
Projection Disclosures. Otherwise, additional information on the model can be found in the
2016 Risk Assessment Assumptions Study.
Each year, we update the risk profile for our state pension plans following the completion of our annual actuarial valuation. We consider a risk profile under two sets of assumptions (Current Law and Past Practices).
Current Law – Where we assume all plans receive the full, actuarially required contribution amount (subject to certain assumed maximums) and benefit provisions remain unchanged over time.
Past Practices – Where we assume all plans receive a percentage (less than 100 percent) of the actuarially required contribution and the Legislature enhances benefit provisions in the future consistent with past practices.
We display the risk measurements under the two sets of assumptions below. These tables were measured based on the most recent
Actuarial Valuation Report (AVR), and market returns through June 30, 2020. Please see the
projection disclosures for additional assumptions beyond the AVR. Given the measurement date, June 30, 2019, these tables do not reflect any changes in plan experience due to COVID-19.
At the time of publication of this webpage, we do not know the full extent of COVID-19 and its impacts to the state pension plans. We developed a dedicated page,
COVID-19 and its Impacts to the Washington State Retirement Systems, that discusses some of the potential impacts as well as an assessment of its risk using stress testing.