Pension risk seems to be a very hot topic these days among pension plan sponsors. With the market collapse of 2008 and the corresponding drop in pension plan assets and funded status for almost every plan in America, many sponsors are faced with the reality of having to contribute larger amounts of money to their pension plan to make up for this shortfall. These contribution requirements are coming at a time that plan sponsors do not have much extra cash due to the recession that caused this drop in their pension plan assets to begin with. Given this turn of events, many plan sponsors are asking the question, “What can I do to make my plan less risky?”
One tool we use to help our clients understand the risks surrounding their pension plan is an asset/liability study. I was fortunate enough to help out on a few of these studies over the past year, including one for one of the largest pension plans in America. We kicked off the study by discussing our long term expectations of the market with our client. This was a really interesting experience given that our client employs investment experts in many different areas of the market and already has thought about this in detail. After agreeing on a set of assumptions, we generated simulations of the economic environment which included inflation, interest rates, and asset returns among other things. We then used these results in conjunction with our forecasting of future pension liabilities to paint a picture of the range of possibilities for the pension plan. We tended to focus on cash flow items since cash requirements are a very tangible “risk” to the plan sponsor. The two largest cash flow items are benefit payments and possible contributions. We also try to show how the range of possibilities would change under a variety of different asset allocations.
The main goal of the study is not to come up with an asset allocation that is the “best” answer for how to reduce the risk of the plan. The goal is really to help our clients understand how their pension plans behave to various changes in the economic environment and which types of asset allocations have better upsides or worse downsides for the items in question. Only then can the plan sponsor make an informed investment decision or benefit design decision.
The experience of working on these studies has really allowed me to combine my actuarial science and finance degrees in ways I never imagined. It is becoming increasingly difficult to look at a pension plan from just the asset or just the liability side. It is really the interaction of the two pieces and understanding the factors that influence the plan from both sides that will allow me to be a better consultant in the future. I’ve really enjoyed being able to work on these types of projects and address the issues which are at the very front of our clients’ minds.
Wednesday, October 14, 2009
Friday, October 9, 2009
Unique and Valuable Lunch Training
Lunch trainings occur nearly every Tuesday and Thursday at J.P. Morgan Compensation and Benefit Strategies. Although Tuesday lunch sessions, referred to as Tuesday Trainings, are a requirement only for those with less than three years experience, many longer tenured people attend. Thursday lunch sessions, on the other hand, are attended by the entire actuarial staff and are for the most part led by senior level employees. In these training sessions, we often cover current events affecting the pension and health care industry and will sometimes delve into the more technical aspects of a topic.
I want to focus on the Tuesday Training sessions, a year-round event with two breaks during the spring and fall examination periods. The training sessions cover a wide range of topics, from those we go over annually such as data preparation and calculating pension expense, to current “hot” topics including the effects of the Pension Protection Act of 2006 and pension risk management. Although not all of the trainings will relate to the work done by each individual, the trainings give a great overview of the many different projects worked on by J.P. Morgan actuaries. I often find that these topics relate to my specific client work and give me a deeper understanding of the fundamentals needed to complete the work.
In addition to being a great source of information, the lunch trainings promote communication between our ten office locations, including Atlanta, Boston, Chicago, Dallas, Denver, Jacksonville, Los Angeles, New York, Saint Louis, and San Francisco. The trainings are conducted live over the internet so each office can follow along with the presentation and ask questions. The trainings give us all a chance to learn what our colleagues in other offices are working on and encourage the flow of ideas.
J.P. Morgan requires each person with less than three years experience to lead at least one training session per year. Deciding whether you will present alone or with a colleague is the first step in the process, followed by the decision of the topic to be covered. Finding a subject expert, someone more familiar with the topic, or at least a more experienced colleague, can go a long way in making your presentation run smoothly. Along with providing a base from which to build your presentation, this subject expert can help to answer questions that arise during your training. Leading a training session gives you the opportunity to share your knowledge on your area of expertise or can allow you the chance to research and learn something new.
Presenting can sometimes be a scary and even daunting task. These lunch sessions provide a “safe” platform to practice our skills and expand our abilities. After each training session, the presenter is provided with feedback from his or her peers. As consultants, this practice is invaluable as we can take our experience to future client meetings. These sessions are just one of the many ways J.P. Morgan provides employees with the tools to succeed in their careers.
I want to focus on the Tuesday Training sessions, a year-round event with two breaks during the spring and fall examination periods. The training sessions cover a wide range of topics, from those we go over annually such as data preparation and calculating pension expense, to current “hot” topics including the effects of the Pension Protection Act of 2006 and pension risk management. Although not all of the trainings will relate to the work done by each individual, the trainings give a great overview of the many different projects worked on by J.P. Morgan actuaries. I often find that these topics relate to my specific client work and give me a deeper understanding of the fundamentals needed to complete the work.
In addition to being a great source of information, the lunch trainings promote communication between our ten office locations, including Atlanta, Boston, Chicago, Dallas, Denver, Jacksonville, Los Angeles, New York, Saint Louis, and San Francisco. The trainings are conducted live over the internet so each office can follow along with the presentation and ask questions. The trainings give us all a chance to learn what our colleagues in other offices are working on and encourage the flow of ideas.
J.P. Morgan requires each person with less than three years experience to lead at least one training session per year. Deciding whether you will present alone or with a colleague is the first step in the process, followed by the decision of the topic to be covered. Finding a subject expert, someone more familiar with the topic, or at least a more experienced colleague, can go a long way in making your presentation run smoothly. Along with providing a base from which to build your presentation, this subject expert can help to answer questions that arise during your training. Leading a training session gives you the opportunity to share your knowledge on your area of expertise or can allow you the chance to research and learn something new.
Presenting can sometimes be a scary and even daunting task. These lunch sessions provide a “safe” platform to practice our skills and expand our abilities. After each training session, the presenter is provided with feedback from his or her peers. As consultants, this practice is invaluable as we can take our experience to future client meetings. These sessions are just one of the many ways J.P. Morgan provides employees with the tools to succeed in their careers.
Friday, November 7, 2008
From Actuarial Scientist to Actuary
During my undergraduate years, I found it rather difficult to explain what an actuary is and what I would be doing post-grad. Sometimes people mistook it as a lab-related science major. Sometimes they thought I would become a math professor. Sometimes they thought I would be selling insurance when I told them I could be someone who comes up with their auto insurance rates. At a dinner recently, a friend introduced me as an actuarial scientist. I decided against explaining that the correct term was actuary as my meal had just arrived.
So, if a large portion of the population is not familiar with what actuarial science is, just how familiar are we as undergrads and recent grads? I can’t tell you what it’s like for an insurance actuary, a health and welfare actuary, or an actuary at another firm. But for anyone who’s looking for more insight into the life of working actuaries, I thought I’d take the opportunity to give you a glimpse into my world.
I currently work in the pension practice area of JPMorgan Compensation and Benefit Strategies. The senior actuaries translate several factors, such as the current market, into assumptions for our models. My job is to apply these assumptions and plan-specific factors to our actuarial software, perform valuation and projection, and prepare reports for our clients. It sounds simple enough. However, it is very important to be skeptical during these processes. I often ask myself several questions: Are the results in line with what we expected? Did we setup the system correctly? Does the participant count seem reasonable? Does it make sense to be incurring this much cost using our set of assumptions? How is it comparing to previous years?
My work is reviewed by the senior consultants before it goes to the client. Accuracy is key. Sometimes we receive requests from clients on benefit estimations. For example, they might want to know if their CEO retires today, how much benefit is he entitled to and how would it affect their plan’s funded status. I was recently assigned to help develop the forecasting process for a client team. Due to the Pension Protection Act and the market situation, there probably will be a lot of modifications. I expect to learn a lot from this project.
_______________________________________
Got a question or a comment? Please share it with us!
So, if a large portion of the population is not familiar with what actuarial science is, just how familiar are we as undergrads and recent grads? I can’t tell you what it’s like for an insurance actuary, a health and welfare actuary, or an actuary at another firm. But for anyone who’s looking for more insight into the life of working actuaries, I thought I’d take the opportunity to give you a glimpse into my world.
I currently work in the pension practice area of JPMorgan Compensation and Benefit Strategies. The senior actuaries translate several factors, such as the current market, into assumptions for our models. My job is to apply these assumptions and plan-specific factors to our actuarial software, perform valuation and projection, and prepare reports for our clients. It sounds simple enough. However, it is very important to be skeptical during these processes. I often ask myself several questions: Are the results in line with what we expected? Did we setup the system correctly? Does the participant count seem reasonable? Does it make sense to be incurring this much cost using our set of assumptions? How is it comparing to previous years?
My work is reviewed by the senior consultants before it goes to the client. Accuracy is key. Sometimes we receive requests from clients on benefit estimations. For example, they might want to know if their CEO retires today, how much benefit is he entitled to and how would it affect their plan’s funded status. I was recently assigned to help develop the forecasting process for a client team. Due to the Pension Protection Act and the market situation, there probably will be a lot of modifications. I expect to learn a lot from this project.
_______________________________________
Got a question or a comment? Please share it with us!
Wednesday, October 22, 2008
An Attribute that Leads to Success
I was recently back at my alma mater, the University of Wisconsin – Madison, to attend a career fair and talk with actuarial students about JPMorgan. About half way through the evening a student asked me, “What skills are necessary to be a successful consultant with JPMorgan?”
I’m not sure that my little more than one year’s worth of retirement experience puts me in a position to say for sure which skills will lead to a successful consulting career. However, I’ll share my thoughts on a related, possibly more relevant question: what attributes are important for a student making the transition from school to the workforce? I feel that the most important attribute for new hires to possess is simply a drive to learn about their practice.
I know that students have mostly been spending the past two or three years drilling the basic actuarial mathematics foundation. If I were to bring one of these sharp students into the office with me for a day, there is a good chance that he or she might not be familiar with the majority of the things driving our conversations – Financial Accounting Standard Numbers (FAS) 87, 106, and 158, Employee Retirement Income Security Act (ERISA), the Pension Protection Act (PPA), nondiscrimination rules, and the alphabet soup that is the Internal Revenue Code.
I don’t feel that this is a fault of college actuarial programs, but rather it speaks to the depth of knowledge required in our profession. I believe this is true across all actuarial practice areas, not just employee benefits or retirement specifically. So schools work to build the common mathematical framework that can lead students into any practice.
The mathematics that you come out of school with is a great starting point, and can serve you well in your career. But if you really want to get a jump start in your career, you need to be a student of your industry. You should understand the context that surrounds the work you do.
Chances are no matter what practice area you end up in, you’ll spend the first several years learning about the particulars of your industry. What are companies currently doing or offering in practice? What are the regulatory rules and how are they changing? How does all this affect the projects you are working on? The more curiosity you possess and the more initiative you take to learn about the landscape, the faster the learning process will be and the better you will be at your work.
I suppose at this point you might be thinking, “Well how can I find out about the landscape of various practice areas?” Ultimately your coworkers are probably going to be your best resource. You can ask questions of more experienced coworkers and work through concepts together with your peers. In the meantime you can talk with past graduates, your peers who have had internships and other contacts you have made at various companies.
While I have shared an attribute that I think is important for making the transition from school to the working world, I want to leave you with something more tangible. Rather than digging up links to various Internet resources, I’ll share a resource that JPMorgan provides. Insight is a publication that our most knowledgeable consultants work on to keep clients up to date on the latest events in the employee benefits world. You may not be familiar with everything that Insight discusses, but if you have an interest in the industry, you will probably find the articles interesting and helpful for familiarizing yourself with common topics and terminology. You can access Insight at: http://www.jpmorgan.com/pages/jpmorgan/am/cbs/insight.
____________________________________
Got a question or a comment? Please share it with us!
I’m not sure that my little more than one year’s worth of retirement experience puts me in a position to say for sure which skills will lead to a successful consulting career. However, I’ll share my thoughts on a related, possibly more relevant question: what attributes are important for a student making the transition from school to the workforce? I feel that the most important attribute for new hires to possess is simply a drive to learn about their practice.
I know that students have mostly been spending the past two or three years drilling the basic actuarial mathematics foundation. If I were to bring one of these sharp students into the office with me for a day, there is a good chance that he or she might not be familiar with the majority of the things driving our conversations – Financial Accounting Standard Numbers (FAS) 87, 106, and 158, Employee Retirement Income Security Act (ERISA), the Pension Protection Act (PPA), nondiscrimination rules, and the alphabet soup that is the Internal Revenue Code.
I don’t feel that this is a fault of college actuarial programs, but rather it speaks to the depth of knowledge required in our profession. I believe this is true across all actuarial practice areas, not just employee benefits or retirement specifically. So schools work to build the common mathematical framework that can lead students into any practice.
The mathematics that you come out of school with is a great starting point, and can serve you well in your career. But if you really want to get a jump start in your career, you need to be a student of your industry. You should understand the context that surrounds the work you do.
Chances are no matter what practice area you end up in, you’ll spend the first several years learning about the particulars of your industry. What are companies currently doing or offering in practice? What are the regulatory rules and how are they changing? How does all this affect the projects you are working on? The more curiosity you possess and the more initiative you take to learn about the landscape, the faster the learning process will be and the better you will be at your work.
I suppose at this point you might be thinking, “Well how can I find out about the landscape of various practice areas?” Ultimately your coworkers are probably going to be your best resource. You can ask questions of more experienced coworkers and work through concepts together with your peers. In the meantime you can talk with past graduates, your peers who have had internships and other contacts you have made at various companies.
While I have shared an attribute that I think is important for making the transition from school to the working world, I want to leave you with something more tangible. Rather than digging up links to various Internet resources, I’ll share a resource that JPMorgan provides. Insight is a publication that our most knowledgeable consultants work on to keep clients up to date on the latest events in the employee benefits world. You may not be familiar with everything that Insight discusses, but if you have an interest in the industry, you will probably find the articles interesting and helpful for familiarizing yourself with common topics and terminology. You can access Insight at: http://www.jpmorgan.com/pages/jpmorgan/am/cbs/insight.
____________________________________
Got a question or a comment? Please share it with us!
Monday, September 29, 2008
2008 Analyst Training Program
After a two-hour flight delay, I finally arrived at JFK airport in New York. I was excited and energized about the beginning of my employment at JPMorgan. My work began in the 2008 Analyst Training Program for new hires. The program lasted five weeks and covered a wide range of topics from professionalism and communication to accounting and statistics.
When you think of training, you might think of a lecture hall. You enter a room, maybe collect some presentation print-outs, take a few notes and apply a fragment of what you heard in the real world. While this training program did include some lectures—you have to hear it from the experts first, right? —we actually got to apply what we just learned in case studies. Not only that, but as a part of a group of 150 analysts in the Asset Management branch of JPMorgan, I met an expansive network of colleagues and friends as I worked on these case studies.
Each week we covered one or two topics. Usually, we spent the morning hours in a lecture, and the afternoon hours applying this knowledge to real world case studies. At the end of the first week where we discussed accounting, we had to research a prospective client’s background, review their financials and current asset allocation, and provide a recommendation on whether to accept the client. We then presented our recommendation that afternoon. Needless to say, we quickly learned the importance of a deadline.
In the second week, we covered statistics and communication. Our case study included calculating return data versus a benchmark and creating an investment correlation matrix. We developed an uncorrelated asset allocation and provided information on ratios, including the Sharpe ratio and information ratio.
The third and fourth weeks followed much of the same format, including two-and-a-half days of Excel training. We were to become “power users” and were not to use our laptops’ touch pads. They brought in a dynamic specialist who taught us a lot of quick short-cuts and efficient keystrokes. For actuaries, knowing these Excel short-cuts is essential! Trust me.
The final week was dedicated to our case studies, where we worked in groups of five to eight. Our group was given a prospective institutional client looking to invest their pension assets. As a group, we decided on an asset allocation to meet the needs of their defined benefit plan and provided a list of possible investment choices we would make available for their defined contribution plan.
Of course, all work and no play makes for a dull analyst. We went to a Yankee game, an historic experience (even for a non-Yankee fan like myself) considering it was their last season in “the house that Ruth built.” Plus, on one Saturday night we went on a boat cruise around Manhattan with food and drinks.
Overall, the program, as well as the extracurricular activities, made for a great experience. The program showed us the reputation of JPMorgan, the importance of networking, and a basic understanding of Asset Management and JPMorgan as a whole. I do not know of another firm where a beginning actuary can receive this amount of quality training which will be beneficial in establishing a sturdy base for a great career.
_______________________________________
Got a question or a comment? Please share it with us!
When you think of training, you might think of a lecture hall. You enter a room, maybe collect some presentation print-outs, take a few notes and apply a fragment of what you heard in the real world. While this training program did include some lectures—you have to hear it from the experts first, right? —we actually got to apply what we just learned in case studies. Not only that, but as a part of a group of 150 analysts in the Asset Management branch of JPMorgan, I met an expansive network of colleagues and friends as I worked on these case studies.
Each week we covered one or two topics. Usually, we spent the morning hours in a lecture, and the afternoon hours applying this knowledge to real world case studies. At the end of the first week where we discussed accounting, we had to research a prospective client’s background, review their financials and current asset allocation, and provide a recommendation on whether to accept the client. We then presented our recommendation that afternoon. Needless to say, we quickly learned the importance of a deadline.
In the second week, we covered statistics and communication. Our case study included calculating return data versus a benchmark and creating an investment correlation matrix. We developed an uncorrelated asset allocation and provided information on ratios, including the Sharpe ratio and information ratio.
The third and fourth weeks followed much of the same format, including two-and-a-half days of Excel training. We were to become “power users” and were not to use our laptops’ touch pads. They brought in a dynamic specialist who taught us a lot of quick short-cuts and efficient keystrokes. For actuaries, knowing these Excel short-cuts is essential! Trust me.
The final week was dedicated to our case studies, where we worked in groups of five to eight. Our group was given a prospective institutional client looking to invest their pension assets. As a group, we decided on an asset allocation to meet the needs of their defined benefit plan and provided a list of possible investment choices we would make available for their defined contribution plan.
Of course, all work and no play makes for a dull analyst. We went to a Yankee game, an historic experience (even for a non-Yankee fan like myself) considering it was their last season in “the house that Ruth built.” Plus, on one Saturday night we went on a boat cruise around Manhattan with food and drinks.
Overall, the program, as well as the extracurricular activities, made for a great experience. The program showed us the reputation of JPMorgan, the importance of networking, and a basic understanding of Asset Management and JPMorgan as a whole. I do not know of another firm where a beginning actuary can receive this amount of quality training which will be beneficial in establishing a sturdy base for a great career.
_______________________________________
Got a question or a comment? Please share it with us!
Friday, August 22, 2008
Interning 101: From One Intern to the Next
Without sounding too preachy, I do have some advice for aspiring actuaries looking to get the most out of their internship. First, no question is a stupid question…unless it is a question resulting from the fact that you weren’t paying attention. Never be too timid to ask questions, but don’t just ask a question to ask a question. Listen to the answer and draw your conclusions from them. The whole reason for an internship is to learn as much as you can about the profession and the full time employees are wells of knowledge that are waiting for you to let them tell you everything they know. Some of the most interesting conversations I have had are those that started with simple questions like how did you get to be where you are? I love to hear the background stories of the paths people took to get where they are because many are so different.
Second, take notes when people are assigning you a project. No one wants to be bothered over and over again for clarification or to restate projects steps because you didn’t take notes. In the same manner when you have questions about a project compile a list so that you can remember the questions you had in mind. Also don’t go for help for each question. Assemble a few questions with possible solutions that make sense to you and then take them to find answers. Sometimes you would be surprised to find out that you were on the right track and needed a few more helping hints to get what you wanted.
Finally, take initiative to balance your workload. You shouldn’t be spending 60 hours at work, but on the flip side you shouldn’t be taking off early to go to the beach. You should be able to prioritize when projects are due and how to schedule your time efficiently. That in itself is a tough lesson to learn when deadlines start approaching and you become overloaded. Basically you will get what ever you put into the internship. If you want to find your niche or do it all, you will get your chances.
My main professional goal for my internship was to discover what being an actuary meant, and I found out that it could mean a lot of different things besides the usual differentiations of consulting versus insurance, or life and health versus property and casualty. When I set out at the beginning of the summer I wanted to get my feet wet in as many areas as I could, and now looking back I don’t know if I could have had more of a variety of work. I always heard about the stereotypical boring actuary, but after a summer at JPMorgan I have to say that I don’t see how that can be true.
____________________________________
Got a question or comment? Please share it with us!
Second, take notes when people are assigning you a project. No one wants to be bothered over and over again for clarification or to restate projects steps because you didn’t take notes. In the same manner when you have questions about a project compile a list so that you can remember the questions you had in mind. Also don’t go for help for each question. Assemble a few questions with possible solutions that make sense to you and then take them to find answers. Sometimes you would be surprised to find out that you were on the right track and needed a few more helping hints to get what you wanted.
Finally, take initiative to balance your workload. You shouldn’t be spending 60 hours at work, but on the flip side you shouldn’t be taking off early to go to the beach. You should be able to prioritize when projects are due and how to schedule your time efficiently. That in itself is a tough lesson to learn when deadlines start approaching and you become overloaded. Basically you will get what ever you put into the internship. If you want to find your niche or do it all, you will get your chances.
My main professional goal for my internship was to discover what being an actuary meant, and I found out that it could mean a lot of different things besides the usual differentiations of consulting versus insurance, or life and health versus property and casualty. When I set out at the beginning of the summer I wanted to get my feet wet in as many areas as I could, and now looking back I don’t know if I could have had more of a variety of work. I always heard about the stereotypical boring actuary, but after a summer at JPMorgan I have to say that I don’t see how that can be true.
____________________________________
Got a question or comment? Please share it with us!
Friday, August 15, 2008
Interning 101: After Hours
Outside of work, a summer in Chicago was extremely different than the summers I remember in suburban Wisconsin. There was always something to do and JPMorgan gets involved in creating events for you. JPMorgan organized plenty of activities including a volleyball league, baseball outing, bowling night, and a competitive game of whirly ball. Even if not company sponsored, I found that the full-time employees and the interns were always hanging out. Whether it be to play in a volleyball league or just to take a day trip to Six Flags, the summer was full of spur-of-the-moment events that I never wanted to miss. In some aspect I would say I learned more about the career path and actuarial field during these trips than I did when at work. Being able to speak candidly about the actuarial profession outside the work place with actuaries of all levels helped me draw the conclusions I was looking for from an internship, including resting my fears about whether I have what it takes to be an actuary, how studying cuts into work life and outside-of-work life, and how to make a name for myself in the industry and in the workplace.
No doubt the number one reason that I had a great summer was the people that I spent my time with, especially the other interns. Most of the interns lived in the same apartment complex, the “intern palace,” and most nights were spent hanging out together. We decided once a week that someone would cook diner for everybody, which could be the only times that any of us ever cooked a meal all summer. We learned together through everyone’s mistakes and successes and would not have had as meaningful a summer without each other.
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