Actuarial Dicksy Land

Cate Long is a Dick and the public plan actuaries she puts her faith in are all Dicks.

In an article questioning Kevyn Orr’s assertion that Detroit pensions are really $3.5 billion underfunded Ms. Long takes dead aim at what she considers low-hanging fruit in Orr’s argument:

Orr uses a “market value of assets” of $4.9 billion, versus the actuarial value of $6.8 billion recorded by the pensions in the city’s official financial reports. This is the essence of pension voodoo. Orr is allowed to calculate his assumptions in whatever way he wants, while the pension funds did their calculations following industry conventions.

“The essence of pension voodoo”!!!!!!!  Using the current value of plan assets (as difficult as that number may be to arrive at with all the ‘alternative’ investments that public plans have amassed these days) is voodoo but multiplying that market value by 1.2 is perfectly sensible!!!!!

We are not in Kansas any more.  Our apples grow on raspberry bushes and raspberries on apple trees; roses are daisies and daisies are roses. The houses have windows where their doors should be, and vice versa; their chimneys protrude from their sides instead of their tops. Though Dicksy Land is an urban environment, it does support a population of Dicky Birds.

What Ms. Long and other knee-jerk defenders of the status quo fail to grasp is that ‘industry convention’ for public plan actuaries consists of five rules:

  1. keep contributions low
  2. make valuation reports difficult to understand
  3. keep contributions low
  4. get paid as much as possible
  5. keep contributions low

Asset smoothing, though effectively debunked as real voodoo, is widely used by these Dicks since it comports with rules in the world they have created for themselves and those who take them seriously.

5 responses to this post.

  1. Posted by Tough Love on August 29, 2013 at 5:53 pm

    From her bio in the linked article, it’s not clear if Cate Long is a credentialed financial professional (e.g., CFA, etc.) or simply a journalist. But clearly, if she believes the switchover from “Market” to “Smoothed” Plan assets is the real “voodoo” she’s a real novice and has no business writing financial journalism for Reuters

    Reply

  2. Posted by bpaterson on August 29, 2013 at 5:57 pm

    JB1-why don’t the unions themselves in all the different govt entities hire third party actuaries to keep tabs on their members pensions for assurance. at least we would know another side of the story. Somehow their silence is suspect.

    Reply

    • Posted by Tough Love on August 29, 2013 at 9:58 pm

      You sound naive. Have you never heard the Union’s say …”an underfunded promise is better than no promise”?

      The Unions know VERY well that their pensions are routinely underfunded. They make “choices” like everyone else. Since they believe (and up until recently they had good reason to do so) that there is only a VERY small chance their pensions won’t be paid in full and as promised, why divert available revenue to adequately fund their plans when underfunding them leave more money for raises and more workers (and more Union dues).

      Looks like in at least in some places (e.g., Detroit), this logic backfired rather badly. Many more to come. Greed HAS consequences.

      Reply

  3. Posted by George on September 1, 2013 at 12:52 pm

    Detroit’s pension holds debt of a local Hotel. The Hotel appears to be functioning as a hotel, but not exceptionally profitably. The Hotel claims that it can suspend debt payments, and did suspend debt payments. What is the value of the debt as a pension asset?

    Detroit’s pension funds at risk of losing millions with Book Cadillac Hotel loans
    http://www.freep.com/article/20130901/NEWS01/309010056/General-Retirement-System-Detroit-retirement-funds-Kevyn-Orr

    “We’re not in default, so I don’t know what the problem is,” he said.

    Ferchill said the company is abiding by its loan documents, but he declined to explain why the General Retirement System isn’t getting paid if the firm is complying with its loan agreements.

    “I don’t want to explain that,” Ferchill said. “Those documents are so complicated, it’s unbelievable.”

    Reply

  4. Posted by Eric on September 1, 2013 at 10:44 pm

    George:
    Who authorized the investment in the Revel Casino in NJ? What about Lehman Brothers? How about Police and Fire jumping into Enron with “Kenny boy” at the helm? We all knew that “W” gave him that nickname.
    As I said, you must take care of yourself and yourself alone. Family members are the most dangerous to one’s financial health and well being.
    Eric

    Reply

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