Defining actuary (and journalist)

The reason I can call myself an actuary is that I passed a couple of exams in the 1980s and  had the requisite experience then to become an Enrolled Actuary under ERISA which allows me to certify to the funding of Defined Benefit plans.  But public plans are not covered under ERISA so what defines an actuary there?

Based on practically all the reports I have seen it is membership in the American Academy of Actuaries whose requirements include association with practically any organization with the word ‘actuary’ in its name plus a $75 sign-up fee and $605 annual dues.  Then follow the Code of Professional Conduct which is a combination of common sense and following “applicable standards of practice” and you’re an actuary who can claim in your reports:

We hereby certify that, to the best of our knowledge, this report, including all costs and liabilities based on actuarial assumptions and methods adopted by the Board or mandated by statute, is complete and accurate and determined in conformance with generally recognized and accepted actuarial principles and practices, which are consistent with the Actuarial Standards of Practice promulgated by the Actuarial Standards Board and the applicable Guides to Professional Conduct, amplifying Opinions and supporting Recommendations of the American Academy of Actuaries.

But what are “generally recognized and accepted actuarial principles and practices” for public pension funding?

Using asset smoothing, open-amortization periods, 8% interest assumptions, and any gimmick that will understate the contribution yet provide as much of an illusion of solvency as is possible?  Sitting idly by as your client refuses to fund the ARC?  Providing justification for benefit enhancements or contribution holidays as your client may find necessary?  If you are not willing to toe this line you are not going to get hired so only those willing to prostitute their principles get hired and the perverted actuarial standards they sign on to practice become generally accepted.

So it is with the definition of who is a journalist which came into question in an editorial in a local paper that takes legal ads, never examines government audits or budgets, and is generally a conduit for the views of whomever supplies the grease for their presses.  If you are not willing to prostitute your reportage to criteria acceptable to your advertisers and news sources you won’t get the revenue to be able to practice your profession so the perverted journalistic standards practiced become generally accepted.

As defined these days by those doing it ‘professionally’, who would want to be called either an ‘actuary’ or a ‘journalist’?

20 responses to this post.

  1. Hi, You have taught us as much over these many years.
    But, then , I repeat myself. Regards, and thanks for your many hours…….

    Reply

  2. Posted by spookrock on February 16, 2013 at 5:30 pm

    Hi John–

    Given the subject of your blog today I thought I’d share this link with you.

    http://lagrange.suntimes.com/news/16351502-418/pension-controversy-stirs-debate-in-la-grange.html

    Keep up the good work–

    Jim

    Sent from my iPad

    Reply

    • Jim,

      Based on my one experience with the ABCD I don’t see much help there. If any other public pension plan has ever used those mortality assumptions they’ll dismiss. If you have a link to the actuarial report or want to send over a copy of the complaint I’d be glad to look it over.

      John

      Reply

  3. Posted by Tough Love on February 17, 2013 at 12:10 am

    Wouldn’t you agree that it’s quite a bit more difficult than you seem to suggest to be accepted as a member of the AAA today?

    Reply

    • Can’t speak to the difficulty of becoming a MAAA but I presume the EA designation carries some weight. Moot point since I’m not planning on joining any actuarial organization unless COPA resurrects.

      Reply

      • Posted by Cliff Woodhall, EA, MSPA, CPC on February 18, 2013 at 4:39 pm

        Hi, John. I would add that AAA sets the continuing education requirements accepted by members of the major US actuarial groups. They are significant – 30 hours per year. And of course, yes it is possible for an actuary to pass the needed tests for a designation and meet CE and still do the job poorly. But the same is true of any group of professionals. We have to hope that most are committed to upholding the integrity of the profession.

        And COPA continues to exist. It has merged with ASPPA, but is a separate, actuarial only organization. The group that left ASPPA to form COPA in the first place is still present and continues to enforce the COPA standards. COPA feels we can accomplish more working with ASPPA than in direct competition with them.

        Reply

        • Hi Cliff,

          I think COPA was on the right track and I proudly hang my 6/7/07 admission certificate on my wall. I haven’t followed them at ASPPA but wish them well.

          My qualms about the actuarial profession do not arise from any perception that pension actuaries aren’t hard working (most that I’ve come in contact with are diligent, thoughtful, and want to do the right thing) but rather what they are working at.

          I go back to before the top-heavy rules when DB plans were set up to give principals as much as they could get while giving staff nothing (literally with a formula using Social Security offset). An EA could follow the rules as established by those who had an interest in seeing these plans set up (both clients for the tax benefits and actuaries for the fees) yet it would be bad retirement policy in the long run for the nation.

          With safe-harbor match 401(k)s, cash balance plans, and new comparability plans I see a return to those days based on a faulty concept:
          http://blog.nj.com/njv_johnbury/2009/12/pension_actuaries_betrayals.html

          For public plans it’s allowing your client governments to get away with underfunding their plans through a number of faulty concepts such as:
          https://burypensions.wordpress.com/2012/02/01/pension-funding-flaws/

          I see ASPPA-type organizations as promulgating whatever makes their members money – not an entirely distasteful pursuit in a capitalistic society – but to the detriment of the majority of plan participants who have been jargoned out of any debate and won’t know what hit them when they find themselves with only $45,000 in their 401(k) account to retire on or get that letter from the state saying their COLAs are suspended.

          Reply

          • Posted by Tough Love on February 18, 2013 at 7:51 pm

            John, In your last paragraph, It would have been nice to see the “Taxpayers” at least mentioned as part of the group getting screwed..

            And considering the excessive generosity of just about every Public Sector DB Plan, it’s REAL Hard to feel any sympathy if the participants lose their promised COLA’s. In fact, simpathy wouldn’t begin to emerge until their Plan reductions took their pensions down (by 50+%) to the level typical of the Private Sector Taxpayers prying for 80-90% of those generous pensions.

  4. Posted by Greg the Actuary on February 18, 2013 at 5:57 pm

    John,

    Your blog is entertaining.

    My own personal, and admitedly biased opinion is that being a member of the AAA does not make one an actuary. I have always considered these credentials (U.S.) to be the ones that make you a “real actuary” – Associate or Fellow of the SOA, or Enrolled Actuary.

    That said, there are good actuaries and bad actuaries (gross overgeneralization of course), just as there are good and bad teachers, cops, doctors, lawyers, you name it.

    Reply

    • Thank you Greg and you raise an interesting point as it applies to defining what a good actuary is.

      In theory, a good actuary using the law of large numbers and mortality assumptions, can closely predict future costs for predefined benefits. Now let’s look at public pension funding and actuaries A and B and only one variable.

      A) Sees a 30% funded plan that has liquidity requirements necessitating a rate-of-return assumption of no more than 4%.

      B) Uses 8% ROR because his client passed a law requiring him/her to use it.

      Who’s the better actuary? And does it matter that only B actuaries ever get hired so they are the only ones with ‘experience’?

      Reply

  5. Posted by Joel L. Frank on February 18, 2013 at 8:57 pm

    NYC is broke? If it were would it be borrowing $12 billion of voluntary retirement savings of its teachers at a rate of 8.25 percent?

    Reply

    • Posted by Tough Love on February 18, 2013 at 9:48 pm

      If NYC cannot borrow from the Capital Markets at a rate SUBSTANTIALLY lower than 8.25%, it is INDEED broke, AND the “market” has substantive fear of default.

      Reply

      • Posted by Joel L. Frank on February 23, 2013 at 3:21 pm

        Additionally, if NYC were broke would distributions from its Teachers’ Retirement System 403(b) Plan be free of the New York State personal income tax? That’s right, the contributions are made tax-free of the New York State personal income tax and the distributions are received tax-free.

        Reply

        • Posted by Tough Love on February 23, 2013 at 5:19 pm

          That result is due to the Union/Politician collusion …. the trading of campaign contributions and election support for favorable votes on pay, pensions, and benefits.

          Legalized bribery.

          Reply

          • what is being accomplished by all our rants here?

          • Posted by Tough Love on February 23, 2013 at 7:38 pm

            Hard to tell. Certainly it’s mainstream media and academic articles that get the politician’s attention, not our “rants”, but perhaps, w/o our rants, the mainstream media would have been slower to pay attention.

          • Posted by muni-man on February 24, 2013 at 8:13 am

            The rant level on the gooberment side will go up a few decibles when Moody’s comes out with their new pension methodology with the likelihood of a lot of debt downgrades. When it starts becomes more costly for them to borrow and they notice their noose tightening even more, they’ll start hollering. Looks like Detroit will be going into the tank soon too. Then there’s the sequestration boogaloo. Things are gonna start getting a lot more interesting shortly.

          • ‘Sequestration’ & job losses, though workers needed.
            Why not cut costs the 10% by reverse income tax-like system? Pay cuts increase as wages are higher, until the 10% is saved?
            Everyone still has a job, but the more you made, the bigger the wage cut, just as the more you make, the bigger the income tax bite?

  6. Here in Chicago this week the consultants for the teachers pension revised up the unfunded liability because the pension missed its 8% return assumption, which will further soak our school system. But questioning whether 8% is a reasonable assumption going forward is “beyond the scope of their work” http://www.wirepoints.com/chicago-teachers-pension-sinks-further-into-the-abyss/ (see not 7 in the initial pages of the report linked in that article.)

    Reply

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