Model Risk Management for Pension Funds Investment Practitioners

December 2025

Author(s)

Don Boyd

Gang Chen

Executive Summary

Financial models are central to the management of pension plans, guiding decisions about contributions, asset allocation, and risk mitigation. Yet, these models are inherently imperfect, and reliance on them introduces model risk—the possibility of adverse outcomes due to inappropriate model selection, inaccurate parameter values, incorrect model implementation, inappropriate use, or poor communication of results. This report aims to help pension fund practitioners understand and manage such risks, with a particular focus on the Economic Scenario Generators (ESGs) that drive investment-return projections in Asset/Liability Management (ALM) models.

Material

Model Risk Management for Pension Funds Investment Practitioners

Acknowledgements

The authors’ deepest gratitude goes to those without whose efforts this project could not have come to fruition: the volunteers who generously shared their wisdom, insights, advice, guidance, and arm’s-length review of this study prior to publication. Any opinions expressed may not reflect their opinions nor those of their employers. Any errors belong to the authors alone.

Project Oversight Group members:
David Cantor, ASA, Chairperson
Jean-Francois Begin
Gavin Benjamin, FSA, FCIA
Douglas Chandler, FCIA
Jason Kehrberg, FSA, MAAA
James Sharpe
Andrew Smith
Scott Steadman, FSA, MAAA, FCA, EA

At the Society of Actuaries Research Institute:
Barbara Scott, Sr. Research Administrator
Steve Siegel, ASA, MAAA. Sr. Practice Research Actuary

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