SOA Panel States the Obvious – Though Not to Everyone

The New York Times reported today that a “blue-ribbon panel of the Society of Actuaries — the entity responsible for education, testing and licensing in the profession — says that more precise, meaningful information about the health of all public pension funds would give citizens the facts they need to make informed decisions.”

Basically the report made four very sensible recommendations that most citizens would be amazed had to even be recommended.  Anyone without ulterior motives should have no problem agreeing with three of them:

  • a plan’s funding goal should always be 100 percent
  • disclosure of a “standardized plan contribution” that would be calculated by all plans using the same discount rate and funding methodology
  • not using funding instruments that delay cash contributions (i.e. Pension Obligation Bonds)

Then there is the tricky, though no less valid, recommendation:

The Panel recommends that the actuary opine on the reasonableness of all funding assumptions and methods.  The current responsibility of the actuary is limited to addressing the reasonableness of assumptions only if they are deemed to be inappropriate or do not meet ASOPs.  The Panel recognizes that actuaries do not have a fiduciary role, but believes that they should state their professional opinion as to whether funding assumptions and methods are reasonable and will support the achievement of the goals of adequacy and intergenerational equity.

The tricky part is that as more public plans go the way of Prichard, Central Falls, and Detroit plaintiff’s attorneys will then be combing actuarial reports for lines like:

The assumptions underlying these calculations were dictated to us by the government entity.  We believe them to be unreasonable but we also believe we would not get hired if we were left on our own to use reasonable assumptions.

6 responses to this post.

  1. The DB public sector plans were born decades prior to public employee unionism. So why were they severely underfunded (employER only) from the beginning? Because the politicos had to provide for social programs that many citizens needed without dramatically raising taxes.

    Reply

  2. Posted by Tough Love on February 24, 2014 at 3:18 pm

    Quoting …”The Panel recognizes that actuaries do not have a fiduciary role, but believes that they should state their professional opinion as to whether funding assumptions and methods are reasonable and will support the achievement of the goals of adequacy and intergenerational equity.”

    By throwing in the last 3 words of that quote, it will be awfully hard for the opining actuary to respond affirmatively.

    Reply

  3. Additionally, many of these DB plans replaced pre-existing pay-as-you-go plans that went bankrupt because of a lack of funding.

    Reply

  4. […] First, I’ll let my fellow actuary John Bury explain: […]

    Reply

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