Giving California’s actuaries the tools they need to successfully manage one of the largest public pension funds in the world
Teachers Retirement System (CalSTRS) work tireless to guarantee almost 900K of California’s hardworking teachers and their families with a healthy fund to support retirement, disability and survivor benefits. CalSTRS is the largest teachers' retirement fund in the United States and the thirteenth largest public pension fund in the world. As of November 30, 2015, CalSTRS managed a portfolio worth $188.4 billion.
During the early days of the recent financial crisis, funding state pension plans came under the microscope of government and non-government groups regarding the health of the funds. CalSTRS took this as an opportunity to evaluate their actuaries’ systems with an eye toward making sure they had the data necessary for wise investments to meet the needs of a growing population leading longer, healthier lifestyles.
A retirement fund is judged by its ability to fully pay retirees their pensions based on the amount of money the fund has invested. Although this may sound simple to determine it is not; there are a lot of unknowns, particularly how long people are going to live. To determine if defined benefit plans have sufficient money requires that actuaries use a combination of mathematics, statistics and financial theory to study uncertain future events.
For actuaries to do their job they must have accurate data — it is their life blood. At a high level they need data about the money being paid into the fund, the money being paid out of the fund, and then they need data that assists with statistical projections. The actuarial department’s primary job is to perform a yearly analysis, called the “Actuarial Valuation” to determine the financial health of the fund. Since the 1970s CalSTRS had been providing data to the actuaries using a suite of old COBOL programs that extracted data from the pension administration system into simple flat file format. These files were then used by other COBOL programs to generate a series of over 150 reports that the actuarial department analyzed. These reports were printed out each year, on green bar paper, and each year’s reports stood over six feet high! It took months of manual, time consuming and frustrating work to prepare the yearly review.
The answer seemed obvious — implement a modern Business Intelligence system and data mart to support the actuarial work. CalSTRS hired Infiniti to implement a modern, supportable technical solution that would allow CalSTRS to effectively manage and analyze actuarial data. This system was named the “Actuarial Valuation system”.
Infiniti digs deep to find a solution that utilizes existing software
Infiniti’s team worked hand-in-hand with CalSTRS’s actuaries to fully understand how the data from their legacy systems was utilized and what data quality issues were systemic in their current state. The team documented the design in the form of use cases, which laid the basis for software development, test script development, documentation development and training development.
After analyzing the solution alternatives, Infiniti ultimately recommended using Microsoft SQL Server Business Intelligence tools — CalSTRS’s existing software. Infiniti recommended this technology because the data reporting and analysis needs were very complex, but the quantity of data was relatively small. Plus, CalSTRS already had an enterprise license for the Microsoft software and had staff trained to support it.
Once the data validation component was complete, Infiniti’s business intelligence team implemented an extensive data mart and business intelligence solution using modern techniques such as multi-dimensional data modeling that is ideally suited to the actuarial data analysis. The team then produced a series of dynamic report-like views for the actuaries. These gave the users the best of both worlds — a view of the data in formats that were familiar, but with the ability to drill down and further analyze the data using the online system rather than volumes of paper reports.
The Infiniti team then went the extra mile and manually loaded over 20 years of data into the new system. Now, the actuarial team can do year-to-year comparison and trending, which is something they never had before.
CalSTRS ongoing success
Infiniti’s agile methodology provided CalSTRS with a technology solution to meet their needs, based on a deep understanding of their desired outcomes. The Infiniti built Actuarial Valuation Data Mart provides timely and accurate information for these hardworking mathematicians.
The annual data load process is automated, error-free and efficient. The data validation tasks that used to take several months are semi-automated and can be performed in a few days. This frees up the actuarial staff to work on other more important tasks.
CalSTRS now relies on the system to develop actuarial models and produce a variety of ad hoc statistical information. And, they can do this all online — without generating a six foot high stack of paper!