Buck Actuarial Magic

The New Jersey PBA president has issues with the just released July 1, 2013 PFRS actuarial report as prepared by Buck Consultants (Buck) and some $50 million in what he called “pension giveaways” to local municipalities.  The governor’s office responded:

“The change in methodology in this year’s actuarial report, which was approved by the PFRS board including two PBA representatives Monday, makes the system’s methodology consistent with what is standard in the industry,” said spokesman Chris Santarelli.

It is not clear from the article what this “change in methodology” was so I decided to work up a spreadsheet created from taking numbers off of PFRS contribution exhibits since 2000 broken down between the Normal Cost for each year and the Amortization of the Accrued Liability portion.  I still couldn’t find the change referred to but I did find something else that screams manipulation.

With the July 1, 2007 valuation Buck decided to add some numbers to their exhibits detailing the development of their contribution amounts.  They reported the amount of the employees’ contributions that reduced the Normal Cost and added a line item for an Interest Adjustment.  You see these reports are done as of July 1 but the money will physically be paid two years later.  For example, the July 1, 2007 contribution would have been deposited in 2009 so there was an extra $90,318,636 added on: $525,700,527 Normal Cost multiplied by two years of interest at the valuation rate (8.25%).  No explanation of why the Amortization portion was not adjusted for interest but that’s not our concern for the moment.

With the July 1, 2010 valuation which took account of the Chrisite reforms there was also a change in the Interest Adjustment.  Instead of two years at 8.25% (still) the Interest Adjustment magically became one year.  The reduced Normal Cost of $462,402,581 was multiplied by .0825 to get $38,148,123 as the Interest Adjustment yet I don’t remember the reforms speeding up any contribution deposit.

This was Buck finding anything at all to lower contributions without being noticed (except by someone with a working knowledge of pensions and excel) and so it will be with this chat Christie wants to have with the actuaries:

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What can we expect them to work out?

  • David Copperfield brought in as a consultant to make the $52 billion unfunded disappear?
  • Adding a plague component to the mortality table?
  • Using a font that makes nines look a lot like eights thus possibly lowering contributions by up to 11%?

7 responses to this post.

  1. Posted by bpaterson on March 12, 2014 at 6:40 pm

    that ol buck magic got a hold on me. hey I beat tought love to the post!

    Reply

  2. Posted by haz on March 12, 2014 at 7:18 pm

    Good information to hear would like understand more! Seems you have to have a basic accountant knowledge to grasp all the information you provide. Would be nice if you could attend one of our General Meeting? Most active members i spoke to don’t believe the pension is as bad as you and others predict.

    Reply

  3. […] mentioning were the revaluations undertaken for the express purpose of lowering contributions, the dodgy actuarial methods,  and the arbitrary contribution reductions (with one outright repudiation) that occurred during […]

    Reply

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