Recognizing Pension Fraud

Detroit is about to cut benefits for 30,000 members of their retirement system but they need an excuse.  They have settled on fraud, waste and abuse and are probing for evidence.  However, if you look at the Financial Reports for the year ended June 30, 2012 for the General and the Police and Fire Retirement Systems you will see what you might expect:

Year End        General            Police & Fire

Assets          $2,158,837,840     $2,974,461,633

6/30/12                (0.4%)               (1.47%)

6/30/11                18.7%                 13.9%

6/30/10               8.0%                  16.9%

6/30/09            (18.8%)              (14.8%)

6/30/08              (4.3%)                (6.3%)

6/30/07              18.9%                 17.4%

Where would the fraud be?

Very simply, look at the Police and Fire actuarial report for the year ended June 30, 2012 and it tells you that their assets are valued at $3,675,459,604.  The Rube Goldberg machinations used to create that additional $700,997,971 (page 24 of 48 of the report) in the public mind is the real fraud.  Even if the entire corpus of the trusts were found to be invested in a Madoffian ponzi scheme the actuaries would still not recognize that truth for another seven years.

And that’s only the asset side.  Just imagine the tricks possible in valuing liabilities with all the assumptions available for manipulation.

Sure this probe Detroit is taking up might find some instances of fee-spiking or mis-valued hedge funds but it will likely be a pittance compared to the legalized fraud that the public plan actuarial profession has made endemic.

 

One response to this post.

  1. Posted by Javagold on June 25, 2013 at 10:03 pm

    Mark to fantasy………Until the end

    Reply

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