The Society of Actuaries has 8 strategic initiatives for 2011. Number 2 is:
Reputational Risk–Public Pension Plans
The SOA Risk Committee is charged with identifying risks to the profession and the organization. Through their work in 2010 they have identified potential risks that could have long term lasting effects on actuaries. This initiative will address the reputational risk to the actuarial profession arising from the current state of public pension plans.
Obviously the SOA is worried that all the public plans running out of money will shed an unfavorable light on a profession that is primarily responsible for determining contribution amounts to properly fund these plans. I have a suggestion.
In the private sector a Defined Benefit plan needs to be certified by an Enrolled Actuary (EA) as to its funding. There are no laws for funding public plans, only accountants’ suggestions.
I would not eliminate the need for an EA but rather add to it by certifying any actuary qualified to work with government plans as “Proficient In Municipal Plans” (PIMP). This would alert the client, the participants, and the public that this individual not only possesses the requisite actuarial knowledge to handle the work but, more importantly, lacks the ethical and moral bearings to stand up to politicians who would do whatever they damn well please.
I can even suggest some sample exam questions:
a) When you provide the client with an ARC of $3.5 billion and they put in $0 do you:
- resign from the case
- set up an amortization account
- up your fee
b) When you are tasked with developing a cost for a 9% benefit enhancement do you:
- Provide a cost for a 9% benefit enhancement
- Value Lehman stock at 2006 levels and say it won’t cost anything
- up your fee
c) When the plan you are valuing goes bust, do you:
- Apologize profusely
- Blame faulty actuarial assumptions as to mortality and investment earnings
- Blame Bush
- up your fee
Burypensions Blog 
Posted by javagold on February 18, 2011 at 2:05 am
just put the entire pension ponzi scam on RED on a roulette wheel….win and we are out of the hole, lose and we help AC get out of their hole (plus the taxpayers have to makeup the losses, whic is kind of like the risky stock market losses….not a bad deal keep the gains and socialize the losses)
Posted by Larry Littlefield on February 18, 2011 at 6:19 am
I suppose that someone at the meeting will point out that the three bond rating firms are still in business with their government-sanctioned monopoly.
The accounting firms pulled the same stunts but the Feds can’t shut any down because there are too few left.
And no real estate appraisers went to jail.
The rot is everywhere you look. I wonder what the NYC actuary will say about the funding level of the city’s pension plans when he completes his study. Or if he will just avoid completing the study.
This country is willfully shifting obligations to the future and those who will live in it based on some rather cheerful assumptions.
Average wages for males peaked in 1973; household spending has been propped up first by sending more household members to work, then by taking away future income (private sector retirement benefits) rather than current spendable income, then by soaring household debt. Now household spending is falling. That’s a near 40 year trend of stagnant to falling wages.
After a bubble stock prices have gone nowhere for a decade. And guess what: the richest generations in U.S. history are now age 55 and over, and they will be SELLING stock. So either the U.S. will be sold to foreigners or they will have to sell for less, because the younger people who would be buying don’t have as much money. The same may be said for houses.
Just putting the rate of return assumptions in the pension plans in perspective. Only two things get us out of this hole: inflation, which raises nominal (if not real) returns and an ongoing boom in the rest of the world pulling us out of this. It’s not impossible, but it’s a Hail Mary, and Generation Greed has bet future generation’s well being on it.
Posted by Jeff Diamond on February 18, 2011 at 8:47 am
You all seem to be forgetting about Ben Bernanke, his superman cape, and his electronic printing press… He has been able to keep the game going as long as the rest of the world and Wall Street keep pretending that “it’s all good.”
Posted by skip3house on February 18, 2011 at 11:51 am
I suggest exposing the involved NJ Legislators and Governors for how they are – ignorant and with little curiosity.
Posted by brooklyn91941 on February 18, 2011 at 2:29 pm
We have to end accounting gimmicks when determining contributions to pension funds. We must hold the government side’s feet to the fire when projecting future needs ( not pie in the sky assumptions). If the government makes a deal, they must be held accountable.
In NJ we had a very good system until Gov. Whitman decided to play games with the pension system Not putting money in, and borrowing Pension obligation bonds, (which we now own about 700 million per year). Since then all of the governors followed suit, no or minimal contributions.
Defined benefit must require both sides to act responsibly or go to jail.
Posted by tough love on February 19, 2011 at 1:22 am
Sure we should fund the Plans, but only AFTER we reduce pension accruals by 50+% …. because there isn’t a Public sector Plan alive that doesn’t provide at least twice the benefits, and therefore cost twice as much as the pension of comparably paid Private Sector workers.