Battling Actuaries in Detroit

Thomas “Hit Man” Hearns, Joe Louis, Eddie Futch, Sugar Ray Robinson.  The list of fighters with links to Detroit is long and impressive.  So it is with particular sadness that Detroit is hosting a battle royale within a profession completely devoid of any pugilistic skills.

Actuaries can’t fight and don’t often need to.  Hiding behind a of phalanx of manufactured arcana that daunts the quizzical we epitomize GBS’s definition of a profession as a conspiracy against the laity and since we deal with guessing about events far into the future we get to provide whatever conclusions our paying clients desire*.

But what happens when two clients have conflicting desires that they get two actuaries to sate?

Gabriel Roeder Smith & Company (GRS) is the longtime actuary for Detroit’s two pension plans.  They came out with their valuation of the Police and Fire Plan last month showing a funded ratio of 96.1%.   The city of Detroit, anxious to welch on pension promises, previously hired Milliman to do a very rough preliminary guesstimate not based on any detailed calculations to see what they could came up with.  That ugly number turned out to be a $3.5 billion underfunding and left Detroit’s retirees wondering what’s ahead.

GRS was stung by that report and fired back in a press release saying in part:

An article in the February 26, 2013 Detroit Free Press“Police, fire pension costs could crush Detroit’s finances, study shows” asserts that Milliman has “audited” our 2010 valuation reports and found that “the GRS numbers … don’t hold water.” Milliman’s work for the City was confidential and not available to us or to the Retirement Systems at the time the Detroit Free Press article appeared. Consequently, our ability to respond was very limited. We have since obtained a copy of the study which was dated July 6, 2012 and have reviewed it. Nowhere does the study contain the statement that “the GRS numbers … don’t hold water.” The study does, however imply that our calculations may be biased and it contains the following statement on page 2
“The following table contains our very rough preliminary guesstimates (“VRPG”) of the potential actual state of the [City of Detroit Retirement] systems. Please note that these VRPGs are based on a high level analysis using rules of thumb and knowledge from general experience are not based on any detailed calculations”
The study goes on to present figures that are remarkably different from the actuarial calculations that experienced public sector actuaries at GRS prepared using detailed data on the operation of the Systems and robust actuarial software. GRS work, which was not based on “VRPG”, complies with relevant pronouncements of the Governmental Accounting Standards Board (GASB) and actuarial standards of practice.

‘Experienced public sector actuaries’ with their ‘robust actuarial software’ have gotten us to this point?  Can we do without their type of coping?
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* Within limits in the private sector where the IRS, DOL, and PBGC give us a bunch of rules that don’t exist in the public sector where ‘creativity’ has free rein.

9 responses to this post.

  1. Posted by Tough Love on June 16, 2013 at 9:17 pm

    I guess somebody forgot to tell GRS that while their work product may have met the (then in place) relevant pronouncements of the Governmental Accounting Standards Board (GASB), that those GASB Standards were a croc of SH** ….. as we now know.

    Reply

  2. Posted by NFS on June 16, 2013 at 10:32 pm

    Detroit. Coming to your city.

    Reply

  3. An article in the February 26, 2013 Detroit Free Press“Police, fire pension costs could crush Detroit’s finances, study shows” asserts that Milliman has “audited” our 2010 valuation reports and found that “the GRS numbers … don’t hold water.” Milliman’s work for the City was confidential and not available to us or to the Retirement Systems at the time the Detroit Free Press article appeared. Consequently, our ability to respond was very limited. We have since obtained a copy of the study which was dated July 6, 2012 and have reviewed it. Nowhere does the study contain the statement that “the GRS numbers … don’t hold water.” The study does, however imply that our calculations may be biased and it contains the following statement on page 2 “The following table contains our very rough preliminary guesstimates (“VRPG”) of the potential actual state of the [City of Detroit Retirement] systems. Please note that these VRPGs are based on a high level analysis using rules of thumb and knowledge from general experience are not based on any detailed calculations” The study goes on to present figures that are remarkably different from the actuarial calculations that experienced public sector actuaries at GRS prepared using detailed data on the operation of the Systems and robust actuarial software. GRS work, which was not based on “VRPG”, complies with relevant pronouncements of the Governmental Accounting Standards Board (GASB) and actuarial standards of practice.

    Reply

    • Posted by Tough Love on June 21, 2013 at 9:56 pm

      And aren’t those GRS…”experienced public sector actuaries”

      VERY well paid for their work …. and perhaps biased to produce an outcome those hiring them want to see …. to make certain they will indeed CONTINUE to perform this VERY WELL PAID work ?

      Reply

  4. An article in the February 26, 2013 Detroit Free Press“Police, fire pension costs could crush Detroit’s finances, study shows” asserts that Milliman has “audited” our 2010 valuation reports and found that “the GRS numbers … don’t hold water.” Milliman’s work for the City was confidential and not available to us or to the Retirement Systems at the time the Detroit Free Press article appeared. Consequently, our ability to respond was very limited. We have since obtained a copy of the study which was dated July 6, 2012 and have reviewed it. Nowhere does the study contain the statement that “the GRS numbers … don’t hold water.” The study does, however imply that our calculations may be biased and it contains the following statement on page 2 “The following table contains our very rough preliminary guesstimates (“VRPG”) of the potential actual state of the [City of Detroit Retirement] systems. Please note that these VRPGs are based on a high level analysis using rules of thumb and knowledge from general experience are not based on any detailed calculations” The study goes on to present figures that are remarkably different from the actuarial calculations that experienced public sector actuaries at GRS prepared using detailed data on the operation of the Systems and robust actuarial software. GRS work, which was not based on “VRPG”, complies with relevant pronouncements of the Governmental Accounting Standards Board (GASB) and actuarial standards of practice.

    Reply

  5. The study goes on to present figures that are remarkably different from the actuarial calculations that experienced public sector actuaries at GRS prepared using detailed data on the operation of the Systems and robust actuarial software. GRS work, which was not based on “VRPG”, complies with relevant pronouncements of the Governmental Accounting Standards Board (GASB) and actuarial standards of practice.

    Reply

  6. […] actuaries don’t fight very entertainingly but actuarial societies and large actuarial firms guarding their bottom lines mix it up with a tad […]

    Reply

  7. […] Where is that Milliman report supporting a $3.5 billion liability number that everyone seems to take as […]

    Reply

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