406 – Current Events in Public Plan Funding Policy
April 04, 2017 11:00 AM – 12:30 PM
The Conference of Consulting Actuaries’ (CCA’s) Public Plans Community’s white paper “Actuarial Funding Policies and Practices for Public Pension Plans” has been a resource for actuaries for over two years. Many public sector retirement systems have implemented new funding policies based on actuarial principles similar to those in the white paper. Alternatively, an interpretation of financial economics on funding may look much more like private sector plan funding. Speakers discuss these different approaches, as well as how they may or may not align with the objectives of the plan sponsors.
In one corner, from parts unknown, it was Ed Bartholomew of Building Better Pensions espousing the Financial Economics position and his tag-team partner Bob North, former chief actuary for New York City where he pioneered the inclusion of alternate liability values (MVABO) in NYC actuarial reports and CAFRs.
Opposing them are the Actuarial Realists who are working public plan actuaries: Paul Angelo from California and Sherry Chan, the current New York City chief actuary who took Bob North’s MVABO numbers out of the NYC actuarial reports.
Let’s get ready to rumble:
Paul Angelo kicked off with the 2014 CCA white paper on funding policies as the way to go decrying FE as “insufficient to reflect the policy objectives of public plans.”
Ed Bartholomew hit back with a 2016 working paper on FE principles and saw AR methods as ‘seriously flawed” as they “ignore the cost of risk.”
Bob North did want to put market based numbers into his NYC actuarial reports and he did which led some in the media to jump to the conclusion that there were two sets of books. Sherry Chan took MVABO numbers out citing precept 8 of the Code of Professional Conduct:
An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.
Paul Angelo noted that “we can illustrate but it is not in the purview of the actuary to assess what employers can afford” which seemed to contradict his criticism of FE as not reflecting “policy objectives of public plans.”
Everyone in that room understood what the policy objectives of public plan trustees are (and one even said it though “off-the-record”): “minimization of contributions.” And it is the AR people who give it to them which is why they get hired.
Bob North finished up wth the comment that he is “disappointed that actuaries do not lead these discussions.” So am I but we can only do that if we go beyond holding them only at actuarial conferences in paranoid fear of media attention. Not that we should rent Madison Square Garden and see if Undertaker is interested in an undercard comeback but there must be a middle ground. Besides, Paul Angelo would probably start getting too used to these types of entrances and the EA conference committee just does not have the funds: