Trusting the ‘Experts’

“Because of improper actuarial calculations, Contra Costa’s public employee retirement system overpays about 10 percent of its pensioners — and taxpayers must make up the resulting shortfall.”

Not the type of first line of a news story that the actuary for those plans would want to see but that’s what E&O is for.  The real issue is how this error was discovered:

The practice apparently has been going on for decades. It came to light when Segal in May submitted benefit payment calculations for a retiree. Trustee Debora Allen noticed the assumptions included no cost-of-living adjustment.

If ever there was an argument for financial experts on pension boards, this is it. Allen is a certified public accountant whom county supervisors last year appointed as a trustee.

A qualified trustee.  There’s your headline.

In New Jersey anyway you see these boards, authorities, and even councils populated with event planners and fundraisers whose primary qualification is the ability to think as they’re told.  They don’t know enough to ask questions or even recognize that the ‘experts’ they bring in may be self-serving or incompetent.

Perhaps it’s time the participants in these plans and taxpayers in these cities start demanding competence in governance.  Sure you want them dumb enough so they give you what you want (lifetime health benefits or lower taxes) but not so dumb that they can’t make good beyond the hollow promises that their paid-up-front experts provide.

4 responses to this post.

  1. Posted by bpaterson on June 17, 2012 at 11:30 pm

    if one goes to th ATM machine and the balance in your bank account is $1 million more than what your account should be, you still have to pay it back, right? This sounds like the same issue.

    Reply

  2. Posted by Anonymous on June 17, 2012 at 11:33 pm

    I believe Chris Christie when he said that he saved my pension. Thank you Chris Christie, we know you are the most honest politician alive

    Reply

  3. Posted by Tough Love on June 17, 2012 at 11:36 pm

    It appears that Segal has been making this error for decades. If ever I have seen a case of professional negligence this is it. There is no justification for paid professional actuaries to omit the impact of future COLA increases in the cost of the survivorship option.

    Obviously Contra Costa needs to:

    (1) end a continuation of this error immediately for new retirees,
    (2) adjust the calculation for future payments to current retirees, and
    (3) attempt to recover overpayment already made.

    The latter 2 may be difficult either due to the lack of political will or a legal concept called detrimental reliance in that that retirees made decisions based on what they were told.

    Either way, to the extent ALL of 1, 2, and 3 cannot be accomplished, Segal should be sued for full cost of their negligence. And not to worry, as they have E&O insurance for mistakes just like this.

    Reply

  4. Good case for ‘KISS’. A 401(k) system would have no complications.

    Reply

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