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FINANCIAL
ANALYSIS:
An Example of the Rael & Letson Approach |
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Issue:
The actuarial valuation showed that the net investment return for three
of the prior five years has been below the actuarial assumed return. The
investment manager has advised the Trustees that a change in the asset allocation
should be made to improve long term investment performance. The Board asked
Rael & Letson for an opinion. |
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Process:
Rael & Letson developed an asset/liability study to assess the needs of
the trust fund. Projections of benefits to be paid in upcoming years were
made to measure liquidity requirements. Working with the investment manager,
Rael & Letson was able to use appropriate parameters for return, inflation
and risk factors. |
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Outcome:
The Board was given a report that clearly identified the increased volatility
associated with more aggressive asset mixes. Rael & Letson showed that,
even with the increased risk, the probability of current contributions being
insufficient was less than 5%. The Board was able to make an informed decision
about changing the asset allocation. |
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