Public Plan Actuaries as “Experts”

It must have taken guts for people in the Dark Ages to question whether those learned men bleeding them with leeches to cure their gout really knew what they were doing.  But when enough people die methods and those propagating them get questioned.

In the insular world of public plan funding where actuaries have brainwashed the public (and possibly themselves) into believing that what’s most convenient for their clients (i.e. low or no contributions) must perforce be actuarially sound we now have GASB, Moody’s and Detroit saying otherwise.  Opinion-makers have noticed.

In a piece by John Mauldin picked up as a lead article by Business Insider a line is crossed with one word in quotes:

Some states and municipalities are in far worse shape than others, and to be honest with you, I don’t see how some of them can meet their commitments. Others are trying to be responsible and fulfill their pension fund obligations based on the assumptions their “experts” come up with, but the problem is that those assumptions may be overly optimistic.

It’s like when Dr. Benjamin Rush would have first been referred to as an “expert” instead of an expert as people began wondering if these leeches were really serving the greater good?

29 responses to this post.

  1. Posted by Tough Love on September 10, 2013 at 1:28 am

    There is nothing quite like wanting to CONTINUE getting these engagements (and bill at $400-$800/hr) to dull one’s ethics.

    Reply

  2. Posted by Eric on September 10, 2013 at 8:48 am

    Tough Love:
    What ethics? Also, as far as rating agencies go, do you think that a ratings agency owned by Warren Buffet would downgrade a company that he also owned? Many companies go from an A rating to a D or an F rating the very next day when a bankruptcy has just been filed. As I said, trust no one. Do your own research.
    I have read that the duty of a financial planner is to separate a client from his or her money in order for the planner to finance his or her own retirement and send his or her own children to school. There is a lot of truth to that. I am sorry for making this comment to the honest ones that still exist.
    Be careful.
    Eric

    Reply

    • Posted by Tough Love on September 10, 2013 at 10:35 am

      There are (generally “fee paid”) “investment advisers” for which the arrangement with the customer is that of a “fiduciary”. Under that arrangement an investment recommendation must not only meet the “suitability” test, but also be the choice that is is the best interests of the customer.

      Example … under most brokerage/financial-planner arrangements if investments A, B, C, and D are all “suitable”, the broker/FP can choose the one with the highest commission, or the one simply being pushed by their firm. Under the “fiduciary” arrangement” the investment adviser legally MUST choose the investment that is in the best interests of the customer (ALL things considered).

      Proposals are under way to possibly make ALL brokers/FPs fall under the fiduciary standard. In the meantime, you can ask your adviser if he/she will agree (in writing) to work for you as a “fiduciary”. Some will.

      FYI, I believe Mr. Buffet divested his firm of a great deal of shares in the Bond insurers before things got really bad. He has taken a hit (sold at a considerable loss just to get out), but it could have been much worse.

      Reply

      • Posted by Anonymous on September 10, 2013 at 11:33 am

        Who is the customer the private taxpayer or the public taxpayer? I disagree that the problem is “low or no” contributions the problem is way too generous plans , salaries and benefits with no sustainable way to pay for it. There is no extra money when one takes into account the mountains of frivolous debt and the “officials” who have been taping the system. And these publics really believe that the money will flow forever……..way to many of them doing way too little for way too much !

        Reply

  3. Posted by eatingdogfood on September 10, 2013 at 12:13 pm

    CA CHING, CA CHING, CA CHING! YEAH, IT MUST BE THAT TIME OF YEAR AGAIN! My Union Boss down at the Town Hall emailed me yesterday and.
    Told me that this article was hitting the Papers today, and He told Me.
    to make it Look like I was Working till this Blows Over in a week. I
    know the routine! In a week, I’ll be back to my usual activity of.
    Collecting A Paycheck for Doing Nothing! Hey, Private Sector.
    Workers; You really gotta Pony Up more Taxes! I need at least a 10 %.
    raise! My Cabin Cruiser at the Dock behind my Vacation House in.
    Florida needs a New Engine. My wife has been after me for a new car.
    She wants a BMW X6 G-Power Typhoon S! I told her I can’t afford that.
    car. So then she says she will accept a Mercedes-Benz CL-Class and.
    Nothing else! I also got Private School Tuition of $ 40,000.00 due.
    in September. I got Credit Card Expenses coming out my AXX! That
    new 3000 sq ft extension on my house raised my property taxes $ 15,000.
    The maid and the housekeeper want raises. The gardener also wants a.
    raise. You see Bunky; It ain’t easy in the Public Sector! So come
    on Private Sector Worker; Pony Up and Pay More Taxes so I can afford to.
    live here! You See; Life Is Not Fair, and the DemoRats will take.
    care of Everything! HAPPY DAYS ARE HERE AGAIN!

    Reply

  4. Posted by Eric on September 10, 2013 at 5:40 pm

    Tough Love:
    Mr. Buffet was saved by the Wall Street bailout. Without it, he may be playing his ukulele for money to live. This is several years prior to the “tick upward” in interest rates that “rattled” the bond market.
    I overheard a so called “expert” putting his clients into more bonds while at a restaurant. The crew sat at the next table from me.The poor slob already had 38% of his portfolio in bonds and the “adviser” thought that interest rates may “tick” lower! The “adviser” should have been arrested. It is similar to investing in the Revel.
    Eric
    PS I would never have a financial adviser. That is scarier than Obama without a teleprompter.

    Reply

    • Posted by Tough Love on September 10, 2013 at 6:21 pm

      Mr. Buffet was saved by the Wall Street bailout? How so (be specific)?

      My recollection is that he was LENDING/investing money to shore up others (e.g., Citibank).

      P.S.> Anyone heavily invested in long term bonds over the past few years (ending this past June), has done VERY well indeed.

      You sound VERY confused.

      Reply

  5. Posted by Eric on September 11, 2013 at 12:00 am

    The Sacramento Bee noted that Berkshire’s holdings of companies “bailed out” by the Troubled Asset Relief Program or “TARP” constituted approximately 30% of its publicly disclosed stock portfolio.
    The “lending” you speak of consists of receiving preferred shares of Goldman Sachs, as an investment, yielding him a $3.1 billion payday. He also received preferred shares of the Bank of America. This included warrants to purchase 700 million common shares of the Bank of America at $7.14 per share. These warrants are redeemable up to the year 2021. The dividends on the preferred are also cumulative which protected Mr. Buffett in case a payment or payments had been missed. I do not think that these terms had been made available to anyone else. I do not think that even Jim Rogers could have obtained the same deal that Warren Buffett received.
    He also surreptitiously purchased H.J. Heinz by buying the board of directors’ silence since competitive bidding was prevented due to the utmost secrecy of the negotiations to the detriment of the shareholders. This resulted in lawsuits. Code words had been used to conceal the deal.
    Have you ever been in a business deal with Mr. Buffett, Tough Love? He is extremely bright and knows exactly what he wants. He is the most astute businessman on earth. You are the one that forgot that I teach math at a private college.
    Remember you said “Oh that Eric?”. Does that jog your memory? I forgive you.
    Eric, the confused one
    PS Mr. Buffett was “lending” money to make another fortune. He made fools out of the bankers to whom he lent money in order to “assist” them through the economic downturn. He did not “shore up” anyone except Berkshire Hathaway. On some level, I admire Mr. Buffett.

    Reply

    • Posted by Tough Love on September 11, 2013 at 2:24 am

      So what’s your point about Mr. Buffet … that he had funds to spend and negotiated several good deals ? Did you think someone as successful would negotiate lousy deals ?

      Quoting … “Have you ever been in a business deal with Mr. Buffett, Tough Love? He is extremely bright and knows exactly what he wants. He is the most astute businessman on earth. ”

      He sure is … kudos for Mr. Buffet.

      What’s your beef with Mr. Buffet …. jealous ?

      You finally got it right in your LAST sentence here ………. “PS Mr. Buffett was “lending” money to make another fortune. He made fools out of the bankers to whom he lent money in order to “assist” them through the economic downturn. He did not “shore up” anyone except Berkshire Hathaway. On some level, I admire Mr. Buffett.”

      Reply

  6. Posted by Eric on September 11, 2013 at 12:50 pm

    Tough Love:
    Yes, I am jealous of Mr. Buffett. I would not want to be Mr. Buffett, however. He is in his 80s and has prostate cancer. I still wish him well. He is an interesting character.
    Eric

    Reply

    • Posted by Tough Love on September 11, 2013 at 1:45 pm

      Quoting …”Yes, I am jealous of Mr. Buffett. ”

      I greatly respect Mr. Buffet for his business acumen and accomplishments (for many investors as well as himself), but I’m not at all jealous of his money.

      I bet Mr. Buffet is quite good at math. Ever heard the quote …….. those who can “‘do” and those who can’t “teach”?

      Reply

  7. Posted by Eric on September 11, 2013 at 11:28 pm

    Tough Love:
    Quoting….”My recollection is that he was LENDING/ investing money to shore up others (e.g., Citibank).”
    In reality, he, (Mr. Buffett) was lending/investing money not to shore up others, or the economy, but rather to enhance Berkshire’s financial position during a time of economic crisis in which he capitalized upon the misfortunes of others.
    You are too naive and trusting Tough Love, but I like your spirit!
    Eric

    Reply

    • Posted by Tough Love on September 12, 2013 at 1:01 am

      Hogwash, you make it sound like he was selling bottles of water for $10 in a drought, or batteries for $20 in a blackout.

      He did nothing improper, unethical, or illegal, and for comparison, he’s a SAINT compared to just about any elected politician or the leadership of just about any Public Sector Union in America.

      Reply

  8. Posted by Eric on September 12, 2013 at 6:31 am

    Tough Love:
    Do you work for an insurance company? This is a repeated allegation on this blog. Mr. Buffett owns most of them. If so, that would explain a whole lot. I will leave it at that. Have a great day!
    Eric

    Reply

    • Posted by Tough Love on September 12, 2013 at 10:21 am

      No I don’t. Sounds like you are desirous of a Socialist form of Government. Not surprising. While you say you are a Private Sector math teacher, I’ve always suspected you are now (or will be) benefiting from Public Sector pensions and benefits … perhaps from past employment or through a spouse. The absurdly generous and unaffordable pensions and benefits afford these workers are an essential element of Socialism.

      Reply

  9. Posted by Eric on September 12, 2013 at 8:54 pm

    Tough Love:

    Do you believe that we have a free market economy? China and Russia have markets that are more “democratic” and free than the US. If you do not work, you do not eat.
    I swear that I am not a public employee, and I swear that I teach at a private college. My niece is a school teacher, and is a public employee. I guess that is my black eye in your book.

    Shall we leave this one alone?

    I will give you the last word, and I will move on from here, perhaps to the funding of Chicago.

    Best,

    Eric

    PS I do not hate you like others on this blog. Hate destroys from within and is unhealthy. I think you are a bright and an insightful person like Mr. Buffett.

    Reply

  10. Posted by Tough Love on September 13, 2013 at 2:46 am

    Eric, Can I be very specific ….are you or your spouse vested in any Public Sector pension system anywhere … including PAST as well as present work ?

    PS, who “hates” me?

    I’m sure quite a few Public Sector workers/retirees are rather annoyed with my strong advocacy for Public Sector pension reductions, but I can’t recall any of them stating that the “hate” me. Any that do, should consider the rationale for such thoughts.

    Reply

  11. Posted by Eric on September 13, 2013 at 6:53 am

    Tough Love:
    Prior to teaching, I worked in finance. I worked with numbers. I funded my own retirement for many, many years. I did all of my own planning. I pay for my own health insurance as well. Planning involves great sacrifice.
    Eric
    PS I teach for the fun of it. I know that you said those that can’t, teach. Maybe this is why people do not like you. As I said, I am not one of them. I am also not wealthy like your friend,Mr. Buffett. It is nice that you defend him. He is a very bright man.

    Reply

    • Posted by Tough Love on September 13, 2013 at 12:57 pm

      Interesting how you still didn’t directly answer the question dircectly …. let’s try again:

      Are you or your spouse vested in any Public Sector pension system anywhere … including PAST as well as present work ?

      P.S. Strong advocacy against an injustice (forced taxpayer-funding of grossly excessive pensions), especially when that injustice involves a group with very srtong influence … (Public Sector Unions) will undoubtedly aleiniate members of that group do to their self-interest. That’s understandable. If it extends to material “hate”, that’s a relflection on the person doing the hating, not the object of that hate.

      Your contnued pursuit of that line of thought makes me wonder … perhaps you are a closet “hater”.

      Reply

  12. Posted by Eric on September 13, 2013 at 7:24 pm

    I worked in NY for a private company. Why this witch hunt? Is one of your ancestors a judge from the Salem witch trials? It seems as though you may be a descendant.
    Eric
    PS I never hated closets. I hang my coats and my hats in them. You are almost as amusing as Mr. Buffett.

    Reply

    • Posted by Tough Love on September 13, 2013 at 8:20 pm

      Eric, At this point, I’m quite convinced that you (or you spouse) are indeed vested in a Public Sector pension … which explains a great deal of your comments …… as you still will not directly answer the question ….. Are you or your spouse vested in any Public Sector pension system anywhere … including PAST as well as present work?

      How about just admitting that you are. It’s not so hard, and you are still entitled to your opinion … and to advocate for what benefits you … just as I am entitle to advocate against what I see (the current grossly excessive Public Sector pensions & benefits) as an injustice to the Taxpayers who a force to fund it.

      Reply

  13. Posted by Eric on September 14, 2013 at 8:51 am

    Tough Love:
    No. My comments have never advocated any union position. I am now moving on from this discussion.
    Eric

    Reply

    • Posted by Tough Love on September 14, 2013 at 1:31 pm

      Eric, I’ll assume that “No” is your refusal to response to … “How about just admitting that you are”.

      Reply

  14. Posted by Eric on September 15, 2013 at 8:52 pm

    Yes, Tough Love, I am a witch. Happy Halloween! You need some help.
    Eric

    Reply

    • Posted by Tough Love on September 16, 2013 at 1:18 am

      We’re ALL gonna need a LOT of “help” if we don’t neuter America’s Public Sector Unions real soon.

      Reply

      • Posted by Tough Love on September 16, 2013 at 1:24 am

        Eric, Been giving it some thought …..

        I’m actually sorry for my earlier comment about teachers ….. it was a spur of the moment cheap shot. Hardworking, competent, and dedicated teachers are indeed a valuable asset to America.

        Have a nice evening.

        Reply

  15. Posted by Eric on September 20, 2013 at 8:40 am

    Tough Love:
    I accept your apology. By the way, I tell my math students how shrewd, smart and savvy Mr. Buffett is as an investor. They look at it as a break from integral calculus.
    The irony is that you have been attacking me, and I agree with most of what you have been saying. Sometimes, I believe that you have not gone far enough. However, I keep some of those thoughts to myself.
    Oh well, It is almost Halloween…
    Double, double toil and trouble….
    Eric

    Reply

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