Risk Assessment (Stochastic Modeling)

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 might investment returns below expectations or lower than expected state revenue growth impact their financial risks? How could the affordability and funded status of pension plans 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. For more information on the underlying assumptions used in our most current Projections Model, please see the 2022 Projections Model Assumptions and Methods.

Typically, we update our customized risk profile for the state pension plans administered by the Department of Retirement Systems each year following the completion of our annual actuarial valuation projections model. 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 2021 Actuarial Valuation Report (AVR), and market returns through June 30, 2021. Please see the 2021 Projections Model Assumptions and Methods webpage for additional assumptions beyond the AVR. We did not update these risk measurements for the 2022 AVR, because we are currently reassessing the metrics we use to measure risk. We anticipate displaying these new risk metrics following the completion of our 2023 actuarial valuation projections model in the Fall of 2024.



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 2023 Report on Financial Condition.

These select risk measurements provide a helpful and quick at-a-glance summary of the financial risks of the state 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. 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.


Last Reviewed: 12/12/2023

Last Updated: 12/12/2023