Christie Dictating to Milliman

There was a session I attended at last week’s Enrolled Actuaries meeting titled Ethics Situations that Public Plan Actuaries are Often Placed In where one of the discussion topics was:

How much should the public system’s staff be allowed to edit or influence the content and/or wording of an actuarial report or other actuarial work product from their outside consulting actuary. This can range from:
1. Editorial suggestions on wording to requests, to
2. Requests to delete sensitive content that is informative and relevant but non-essential, to
3. Arm twisting for changes to specific and material recommendations.
This generally happens behind the scenes, so as to influence what information is seen by the Board and the public.

When I got back to the NJ pension beat I came upon a real world example:

The June 30, 2010 actuarial valuation of the Teachers’ Pension Annuity Fund of New Jersey included this paragraph in the cover letter under the heading Certification (emphasis added):

In compliance with New Jersey statute, this actuarial valuation is based on an investment return assumption of 8.25%. The investment return assumption is specified by the State Treasurer. Based on our most recent analysis, this assumption is outside our reasonable range. If the investment return assumption was lowered, the actuarial accrued liability and statutory contributions would increase and the funded ratio would decrease. Determining results at an alternative investment return assumption is outside the scope of our assignment.

The interest rate was lowered but the June 30, 2011 report still warned:

In compliance with New Jersey statute, this actuarial valuation is based on an investment return assumption of 7.95%. The investment return assumption is specified by the State Treasurer. Based on our most recent analysis, this assumption is higher than our best estimate of future returns, but falls within the optimistic end of our reasonable range.

In the June 30, 2012 report the rate dropped another .5% but the warning got stronger:

 In compliance with New Jersey statute, this actuarial valuation is based on an investment return assumption of 7.90%. The investment return assumption is specified by the State Treasurer. Based on our most recent analysis, this assumption is outside our reasonable range. If the investment return was lowered, the actuarial accrued liability and statutory contributions would increase and the funded ratio would decrease. Determining results at an alternative investment return assumption is outside the scope of our assignment.

And in the June 30, 2013 report some direction:

In compliance with New Jersey statute, this actuarial valuation is based on an investment return assumption of 7.90%. The investment return assumption is specified by the State Treasurer. Based on Milliman’s capital market outlook model, this assumption is above the 75th percentile of projected annualized 30-year returns. We believe consideration should be given to reducing the investment return assumption. If the investment return was lowered, the actuarial accrued liability and statutory contributions would increase and the funded ratio would decrease. Determining results at an alternative investment return assumption is outside the scope of our assignment.

However for the June 30, 2014 report which came out in the middle of Chris Christie’s presidential campaign (though a few months before his official announcement) we got this gobbledygook:

This valuation report is only an estimate of TPAF’s financial condition as of a single date. It can neither predict the System’s future condition nor guarantee future financial soundness. Actuarial valuations do not affect the ultimate cost of TPAF benefits, only the timing of TPAF contributions. While the valuation is based on an array of individually reasonable assumptions, other assumption sets may also be reasonable and valuation results based on those assumptions would be different. No one set of assumptions is uniquely correct. Determining results using alternative assumptions is outside the scope of our engagement.

Weasel words with no hint of disapprobation. But then in the June 30, 2015 report that came out earlier this month (and after Christie’s presidential flameout) a return t0:

In compliance with New Jersey statute, this actuarial valuation is based on an investment return assumption of 7.90%. The investment return assumption is specified by the State Treasurer. Based on Milliman’s capital market outlook model, this assumption is near the 75th percentile of projected annualized 30-year returns. We believe consideration should be given to reducing the investment return assumption. If the investment return was lowered, the actuarial accrued liability and statutory contributions would increase and the funded ratio would decrease. Determining results at an alternative investment return assumption is outside the scope of our assignment.

 

 

 

2 responses to this post.

  1. Posted by S Moderation Truth on April 20, 2016 at 2:02 pm

    “If you don’t read the newspaper you are uninformed, if you do read the newspaper you are misinformed.” ~Mark Twain

    It’s difficult to know and frustrating to see what is really going on in the hearts and minds of our politicians. Just one example, a legislator who opposes gun control, but serves in a district that supports it, can show a record of voting pro gun control by voting for those bills which have no chance of passing. Essentially his vote is worthless, but good for show. (In some states, he could actually vote against a bill, then after the bill passes, change his vote “on the record” to “yes”; as long as it doesn’t reverse the final count.)

    Probably better we all just ignore the “facts” and vote with whatever our preconceived notion is.

    Reply

  2. Posted by Smooth Moderation Truth on April 20, 2016 at 2:26 pm

    I assume

    “Determining results using alternative assumptions is outside the scope of our engagement.”

    means they were specifically directed NOT to provide those calculations. Is the Actuary relationship akin to attorney client privilege where they would not be allowed to divulge whether they had been “ordered” to use the weasel words?

    Surely the state cannot order the actuary to outright lie or falsify information, but are they legally allowed to order the actuary to withhold data or calculations that reflect negatively on the state (or just reflects poorly on the governor)?

    Reply

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