Case Study

During the last decade, one of our public defined benefit plan clients began to experience a declining workforce and shrinking payroll, which subsequently resulted in lower than expected contributions to the plan trust.   The plan, like many others, also suffered a severe decline in its funded status due to the 2008 financial crisis leading to a substantially lower funded ratio and substantially higher contribution rate requirements.

To minimize the effect of a shrinking payroll, we advised the Board of Trustees (and they adopted) a funding policy that moved the system to a dollar amount contribution rather than a percent of payroll.

With respect to ongoing monitoring of the declining payroll situation, GRS used its proprietary projection technology to test multiple scenarios that modeled changes in rates of return, payroll growth assumptions, and amortization periods.    Our interactive projection technology was used at meetings to help the Board see the impact on funded status, which ultimately led the plan to adopt a new amortization policy to further improve funding progress for the plan, and thereby improve benefit security.

Using projection technology has become part of GRS’ core valuation and consulting process for this client. Through regular scenario testing, GRS consultants will help the system refine its assumptions and funding policy on an ongoing basis, furthering the system’s goal of improving the financial condition of the plan.  We are pleased to see the trend in funding progress is now moving upwards.