AI for Pension Funds: Claude Tools for LDI and Asset-Liability Management

Pension Funds and AI

Pension funds manage trillions in assets against long-dated liabilities — a uniquely complex investment challenge. The primary objective is not return maximization but liability matching and funded status stability. Claude with ClaudeFinLab supports the quantitative analysis behind liability-driven investing, risk budgeting, and regulatory reporting.

Funded Status and Liability Analysis

• "Compute the pension funded status: PBO (projected benefit obligation) $4.2B, plan assets $3.6B. Funded ratio: 85.7%. Discount rate used: 5.25% (high-quality corporate bond yield). If the discount rate moves from 5.25% to 4.75%, what is the approximate change in PBO (10-year duration)? What is the new funded ratio?"
• "Calculate funded status sensitivity: our plan has $4.2B PBO with 12-year duration. For each 25bps move in the discount rate: (a) PBO change, (b) assets change (60% liability-hedging portfolio, duration 14yr; 40% return-seeking, assume market-neutral on rates). Net funded status change per 25bps?"
• "Model the pension walk: beginning funded ratio 87%, expected return on assets 7.2%, service cost (new benefits earned) 1.8% of PBO, contributions $180M. Discount rate unchanged. Project funded ratio at year-end."

Liability-Driven Investing (LDI)

LDI is the dominant strategy for DB pension funds — matching the interest rate sensitivity of assets to liabilities:

• "Design an LDI glide path for a plan currently 85% funded: Phase 1 (85-90% funded): 40% liability hedging / 60% return seeking. Phase 2 (90-100%): 65% LH / 35% RS. Phase 3 (100%+): 90% LH / 10% RS. At each phase, what is the expected duration of the liability-hedging portfolio and tracking error vs liability?"
• "Build the liability-hedging portfolio: PBO duration 14.2 years, convexity 120. Target: match duration using long corporate bonds (duration 12yr, 40% weight), STRIPS (duration 22yr, 35% weight), long-duration government bonds (duration 18yr, 25% weight). What is the portfolio duration and is the duration target achieved?"
• "Compute the interest rate hedge ratio: $4.2B PBO with DV01 of $5.04M/bps. Liability-hedging portfolio DV01 $3.21M/bps. Current hedge ratio = 63.7%. What additional long-duration assets are needed to reach 80% hedge ratio, assuming average DV01 of $8,500 per $1M notional?"

Asset Allocation and Risk Budgeting

• "Allocate the $3.6B return-seeking portfolio: targets — US equity 35%, international equity 20%, private equity 15%, real estate 10%, infrastructure 8%, hedge funds 7%, commodities 5%. Compute expected return (using capital market assumptions), standard deviation, and Sharpe ratio for this allocation."
• "Apply a risk budget: total tracking error vs liability target 4.5%. Contributions: rates risk 2.0%, equity risk 2.8%, credit risk 1.5%, alternatives risk 1.0%. Are these contributions within budget? Compute the marginal risk contribution of each asset class."
• "Stress test the funded status: scenario — equity markets fall 30%, credit spreads widen 150bps, 10-year Treasury rallies 100bps. Apply to: return-seeking portfolio (losses) and liability (change in PBO due to rate move). What is the funded ratio after stress?"

Actuarial Assumptions

• "Analyze the sensitivity of PBO to actuarial assumptions: (1) discount rate 5.25% → 5.00% — impact on PBO? (2) salary growth assumption 3.0% → 3.5% — impact on PBO for active participants? (3) mortality table update from RP-2014 to RP-2020 — typical impact on PBO for a plan with average participant age 55?"
• "The plan's actual investment return was 9.2% vs expected 7.5%. Compute the actuarial gain/loss and the corridor amortization under ASC 715 (10% corridor method). Explain when the gain/loss would begin to amortize."

ASC 715 and GASB 67/68 Reporting

• "Draft the pension footnote components under ASC 715: service cost $12M, interest cost $198M (discount rate 5.25% × PBO), expected return on assets $252M (7.0% × assets), amortization of actuarial loss $8M. Net periodic pension cost = ? Show the income statement impact."
• "Compute the net pension liability for GASB 68 (public pension): entry age normal actuarial cost method. Total pension liability $8.4B, plan net position $6.7B, net pension liability = $1.7B. Deferred outflows and inflows (list attached). Compute the total pension expense for the year."

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