Pension asset-liability and cash flow studies

An asset-liability study projects a plan's liabilities, benefit payments and assets together under several interest-rate and return paths, then reports funded status, required contributions and cash needs for each path. It's the pension version of a stress test, run in dollars, and its first question is how much of a rate move the plan can absorb before the contribution budget breaks.

The Actuarial Standards Board's ASOP No. 51 (effective November 1, 2018) addresses the assessment and disclosure of risk in measuring pension obligations and determining plan contributions, which is the frame a good study sits in. The inputs are the valuation, the census, the asset statement and the investment policy. The outputs are tables the investment committee can read without the model.

The diagram shows the run from data to the committee. The plan's actuary reviews the assumptions before the scenarios and the output after them.

Funding discount rates move slowly because they are averaged and then forced into a corridor. Under Code section 430(h)(2), present values use three 24-month average segment rates, and each is adjusted to sit within a percentage band of the 25-year average for that segment. Notice 2026-57 says the band is 95% to 105% for plan years beginning in 2025, 2026 and 2027, and that any 25-year average below 5% is deemed to be 5%. For plan years beginning in 2027 the 25-year averages are 3.13, 4.91 and 5.61.

That gives the following arithmetic for the September 2026 applicable month. The first segment's 24-month average of 4.36 falls below 95% of the deemed 25-year average of 5.00, which is 4.75, so the funding rate is lifted to 4.75. The second segment's 5.32 is above 105% of 5.00, which is 5.25, so it is cut to 5.25. The third segment's 6.02 is above 105% of 5.61, which is 5.89, so it is cut to 5.89.

Read across and the corridor does two different things. Short payments are discounted at a rate above the spot (4.75 against 4.65), and later payments at rates below it (5.25 against 5.75 and 5.89 against 6.73). A study therefore models the funding liability and the accounting liability separately, because the corridor doesn't apply to the second one. The spot rates are the ones that set the minimum present value of lump sums under Code section 417(e)(3).

Source for every figure in the table: IRS Notice 2026-57 (checked 2026-10-16).

A first-order estimate uses duration: a liability with a duration of 11 changes by about 11% for each point the discount rate moves the other way. The table uses an illustrative plan with a 10,000 obligation at a 5.0% discount rate and 8,000 of assets ($000), and compares two asset mixes. In the current mix, half of the assets are in fixed income with a duration of 8 and the other half don't respond to rates. In the matched mix all assets behave like a duration of 11.

Check: 10,000 x 11% = 1,100, so the liability is 11,100 or 8,900. Half the assets is 4,000, and 4,000 x 8% = 320, so the current-mix assets are 8,320 or 7,680. Matched, 8,000 x 11% = 880, so assets are 8,880 or 7,120. The ratios are 8,320 / 11,100, 7,680 / 8,900 and 8,880 / 11,100.

The matched mix holds the funded ratio at 80.0% in both directions, but the dollar deficit still moves with the liability: it is 2,220 when rates fall and 1,780 when they rise. That's the point of liability-driven investing: it narrows the swing in the ratio, not the deficit itself. Real liabilities are convex, so a one-point fall adds slightly more than 11%. Finbryn runs the full cash flows, and the committee decides what to do with the answer.

The projection stacks four lines of cash, each with its own rule and date.

The PBGC premium normally falls due on the 15th day of the 10th full calendar month of the plan year, which is October 15 for a calendar-year plan (2026 premium instructions). Using the illustrative plan again with 400 participants and unfunded vested benefits of 1,200 ($000): the 2026 flat premium is 400 x $111 = 44.4, the variable premium is 1,200 x $52 = 62.4 against a cap of 400 x $751 = 300.4, and the total is 106.8. For 2027 the flat premium is 400 x $116 = 46.4 and the total, holding the unfunded vested benefits constant, is 108.8.

Mortality is an input that changes by year. Notice 2025-40 sets the static mortality tables for valuation dates in 2026, and the notice says static tables are available only to small plans, so other plans use generational tables with improvement.

The same plan produces three liabilities in a single year, and a forecast that mixes them misleads. The table separates them by the rate that drives each.

We label every projected line with its measure. A fall of one point in rates raises the accounting obligation at once, because ASC 715 uses a current rate, while the funding target responds over two years of averaging and the corridor. The CFO sees the balance sheet hit now and the contribution effect later, in the same table.

Finbryn projects liabilities, benefit payments and contributions on assumptions agreed with the plan's actuary. It does not give investment advice or select managers, and any funding certification is signed by the enrolled actuary. Finbryn doesn't sign certifications or set an allocation. Where a study contains an opinion others will rely on, the plan's actuary or another credentialed actuary the sponsor engages, who meets the US Qualification Standards, signs it, and the engagement letter names that person.

The standards of practice that frame the work, with the effective dates on the Actuarial Standards Board list: ASOP 4 on measuring pension obligations (February 15, 2023), ASOP 27 on selecting assumptions (January 1, 2025), ASOP 44 on asset valuation methods (March 15, 2008) and ASOP 51 on assessing and disclosing risk (November 1, 2018). The engagement letter states which of them the signer applies.

When the result points toward action, other pages cover the next step: defined benefit freeze and DB-to-DC conversion costing and pension risk transfer and plan termination support. For the monthly cash view of the sponsor, see the 13-week cash flow forecast.