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The Role of the Actuary in Developing an Investment Policy

The Role of the Actuary in Developing an Investment Policy. Brad Heinrichs, FSA, EA, MAAA Foster & Foster, Inc. brad@foster-foster.com P: 239-433-5500. Funding Basics. Fundamental Equation Benefits + Expenses = Contributions + Investment Earnings

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The Role of the Actuary in Developing an Investment Policy

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  1. The Role of the Actuary in Developing an Investment Policy Brad Heinrichs, FSA, EA, MAAA Foster & Foster, Inc. brad@foster-foster.com P: 239-433-5500

  2. Funding Basics • Fundamental Equation Benefits + Expenses = Contributions + Investment Earnings What comes out = what goes in 2

  3. Funding Basics Timing of contributions affects amount of contributions Benefits + Expenses = Contributions + Investment Earnings ______ Paygo 3

  4. Funding Basics Timing of contributions affects amount of contributions Benefits + Expenses = Contributions + Investment Earnings Advance funding 4

  5. Investment Policy Comments • Keep your eye on the prize! • Actuaries only care about the NET return you’ve received and the NET return you’re expecting to receive in the future • Rate of Return Assumption • Lowering the rate of return assumption will increase costs by about 6-10% of payroll per year!

  6. Investment Policy Comments • Should your investment policy statement consider your liabilities and plan demographics? • ABSOLUTELY! • Why? • If you have a young group with very few retirees, why not invest aggressively? • If you have a large group of retirees relative to actives, why not consider a dedicated or more conservative portfolio?

  7. Investment Policy Comments • Who should you consult with in matters concerning liabilities and plan demographics?

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