Buck Consultants (Buck) in the cover letter to their July 1, 2014 actuarial report for the Judicial Retirement System Plan (JRS) of New Jersey warns:
No one may make any representations or warranties based on any statements or conclusions contained in this report without Buck Consultants’ prior written consent.
Going to the law dictionary:
A representation is an assertion as to a fact, true on the date the representation is made, that is given to induce another party to enter into a contract or take some other action. A warranty is a promise of indemnity if the assertion is false. The terms “representation” and “warranty” are often used together in practice. If a representation is not true it is “inaccurate.” If a warranty is not true it is “breached.”
So why is Buck afraid of you believing what they say and conclude in their report?
Because it’s a sham. Starting with basic census and asset data (that you probably can trust) every aspect of this report serves their client’s purpose of understating the contribution amount masked under a patina of professionalism that strains credulity. For example, later in the cover letter Buck asserts:
The valuation reflects economic assumptions recommended by the Treasurer, which include a rate of investment return of 7.90% per annum and assumed future salary increases of 2.50% per annum through fiscal year ending 2021 and 3.50% per annum for fiscal years ending 2022 and thereafter. These assumptions will remain in effect for valuation purposes until such time the State House Commission or the Treasurer recommends revised assumptions.
In my opinion, the actuarial assumptions used are appropriate for purposes of the valuation and are reasonably related to the experience of the System and to reasonable long-term expectations. These assumptions were selected in accordance with applicable Actuarial Standards of Practice published by the Actuarial Standards Board.
Assuming that ‘economic’ and ‘actuarial’ refer to similar assumptions it is difficult to believe that the ASB in any ASOP approves of the client being able to select their own assumptions. But the real sham are the numbers these assumptions manipulate. Working backwards from Buck’s numbers:
Underlying Valuation Census Data:
- 391 active participants with total compensation of $66,028,491 for an annual average of $166,319
- 561 retirees getting $49,946,393 for an average annual payout of $89,301
- 4 vested terminees expecting $45,875 annually
Buck 7/1/14 Liability Values:
- $444,577,573 for retirees
- $164,706,096 for non-retirees
- $30,803,195 amortization part of unfunded
- $17,619,466 Annual Accrual Cost
Closer to Reality:
Replicating Buck’s data and then valuing liabilities using PPA rates instead of what Buck was told to use results in 25% higher liabilities* and an already pathetic funded ratio of 40% dropping to 32% even before considering the:
- return of cost-of-ling-adjustments
- return of the employees’ own contributions
- proper valuation of all that junk littering the plans that they like to call ‘alternative’ investments
- only available sources of funding being judges themselves and the state of New Jersey, both being equally opposed to making more than token contributions
Put it all together and I represent, with or without Buck’s permission, that this is a zombie plan.
* If interested in trying this at home here is how I worked the numbers.