Comment on SOA Comments

The Society of Actuaries commented officially on the Actuarial Standards Board’s (ASB) Exposure Draft on Public Pension Plan Funding and Accounting leading off with two obvious points:

  1. there is not typically an independent, third-party regulator governing the funding/solvency of public sector plans
  2. in the absence of a third-party regulator, there is a misperception that Actuarial Standards of Practice (ASOPs) are de facto regulation governing public sector plan funding
and summing up with:
we note that the role that actuaries in public plans play is difficult. However, they are the only advisors trained to understand the obligation these plans have taken on. If the actuary does not provide an unbiased measure of the obligation, and a complete assessment of the risk inherent in that obligation, who will?
Yes the actuary by training is best able to understand the obligation these plans have taken on but here’s the problem.

In the public plan sector the actuary is paid to keep quiet about the real cost of these obligations.  Because politicians tell the actuary what assumptions to use they virtually pick their liability and contribution numbers and often have the gall to brag that they are putting in the actuarially determined contribution.

It would be like an insurance company (concerned only about the bottom line) mandating that a doctor treat a cancer patient with whatever it takes to cure them so long as it does not exceed the cost of two aspirin.  The issue the doctor would have when the patient dies is how to explain his obeisance to the opinion of his paymasters over his profession.

That’s what the ASB is trying to unearth with this Exposure Draft but it comes far too late for many public plan actuaries are already sitting shiva for their plans.

One response to this post.

  1. Posted by MJ on November 4, 2014 at 8:34 pm

    If the actuary by training is best able to understand the obligations, then why aren’t these “professionals” who are getting paid huge sums of money either way advising that there is no possible way to fund these overly generous, unrealistic pensions and health benefits. Why would an actuary put themselves in the precarious position of taking the fall when the politicians point the finger at them as the reason the plans are going belly up? Why risk losing your license, professional credibility and future business accounts by not telling the truth? Why is John the only one who seems to understand the magnitude of the situation?

    Reply

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