Jeremy Gold

On Friday someone sent me a link to a Wall Street Journal article titled “Jeremy Gold Shook Up Pension World With Warnings About Risks” and I assumed that Mr. Gold was making news again and I wanted to see what he was up to. Not being a WSJ subscriber, I could not get the full article online. I had heard that you can put the article title into google and sometimes it comes up with the full story but that did not work this time. So I went to the library yesterday to scour past papers. I looked through the headline and finance news and found nothing going back to Wednesday’s edition. Today I tried again online and the full article came up. I had been looking in the wrong places. In the obituaries….


In the sedate world of actuarial science, Jeremy Gold was a bomb thrower. He regularly accused public-pension-fund managers of taking too much risk and underestimating their liabilities to current and future retirees.

“Where are the screaming actuaries yelling in these burning theaters?” he asked in a 2015 speech at the Massachusetts Institute of Technology. He cited the pension shortfall faced by state and local governments, usually pegged today at between $1.6 trillion and $4 trillion. Some governments ran up those debts by paying less than actuaries recommended.

Others made payments endorsed by actuaries based on projected returns that never arrived. “Actuaries should have been the cops here…applying science while all around them were doing politics,” Mr. Gold said.

He was a wild child of the 1960s who flunked out of college before getting his act together. He became “a maverick with a message…that we need to face up to the wreckage that public pensions face,” said Olivia Mitchell, a professor at the University of Pennsylvania’s Wharton School and an expert on pensions. “His work changed the way the profession thinks about retirement systems.”

Mr. Gold died July 6 in New York of myelodysplastic syndrome, which developed into leukemia. He was 75.

Jeremy Edward Gold was born Nov. 28, 1942, in New York City and grew up on the Lower East Side of Manhattan. The son of two high school English teachers, Mr. Gold attended Stuyvesant High School and at 16 was accepted to the Massachusetts Institute of Technology, where he majored in math.

He never graduated from MIT and left with failing grades three years later. His study of mathematics had taken a back seat to working on his pool game, friends and family members said. His sister-in-law recalled a red sports car and a SoHo loft where the television was always on. A photo from the time shows Mr. Gold with a mass of long, curly hair in front of a Volkswagen bus. “I think there was a lot of cross-country driving,” said his son, Jon Gold.

Mr. Gold eventually completed a degree in business administration at Pace University in 1969. He spent two decades as an actuary, eventually ending up at Morgan Stanley in the late 1980s as one of Wall Street’s earliest pension actuaries. He noticed that as interest rates climbed in the 1970s and 1980s, many pension funds raised their expectations about what they hoped to earn on their investments. But as interest rates began to fall, those expected rates of return often remained high.

Tweaking rates of return can drastically change estimates of pension-plan obligations. That’s why estimates of the nation’s total public-pension debt load vary by trillions of dollars.

Mr. Gold came to believe that his fellow actuaries were allowing their pension-plan clients to underestimate their pension liabilities and underfund their plans. At age 53, he applied to the University of Pennsylvania’s Wharton School with the goal of “improving pension actuarial practice through research and intelligent criticism,” he said in the 2015 speech. In the application for his doctoral program, before listing his accomplishments on Wall Street and a stint testifying before Congress, he acknowledged his advanced age and undistinguished departure from MIT. “I hope that the various positives below will outweigh these negatives,” he wrote.

In 2000, Mr. Gold earned a doctorate from Wharton, where he studied pension finance, and began a career as an actuarial gadfly, bringing his message to professional standards boards, pension officials and congressional committees.

He argued that since public pensions represent an ironclad promise to workers, plan sponsors tallying up future liabilities should use a low, risk-free rate to calculate them, regardless of how the money is actually invested. That would result in significantly higher annual pension costs for governments, cutting into money available for salaries and services, and stoking campaigns to curtail pension benefits. But Mr. Gold said banking on rosy returns from more speculative assets like stocks or real estate sticks the next generation with the risk and—if those investments underperform—with the bill.

His logic won accolades in academia and played less well among pension officials. One 2007 presentation to the National Council on Teacher Retirement included a bulleted list titled, “Who should hate me first?”

Two decades after Mr. Gold began his crusade, his influence has crept into the public pension mainstream. Analysts at Moody’s Investors Service in 2013 stopped using the pension liability estimates government actuaries had signed off on and began calculating the debts themselves. The Governmental Accounting Standards Board three years ago began dictating that cities and states with especially large pension liabilities had to incorporate a more conservative rate into their liability estimates. But major public pension plans continue to bank on hoped-for returns: The average rate they used to calculate liabilities in 2017 was 7.38%, according to the Public Plans Database. The same year, the 30-year Treasury peaked at 3.2%.

30 responses to this post.

  1. Posted by MJ on July 15, 2018 at 11:06 am

    ……..with all of Mr. Gold’s accomplishments, eh what does he know:)


  2. Posted by skip3house on July 15, 2018 at 11:16 am

    Sooner or later, will happen to us, whether right/wrong/indifferent/ignorant/…….


  3. Posted by Tough Love on July 15, 2018 at 12:04 pm

    Quoting Mr. Gold ………………..

    “Mr. Gold said banking on rosy returns from more speculative assets like stocks or real estate sticks the next generation with the risk and—if those investments underperform—with the bill.”

    We (the Taxpayers) should REFUSE to pay that bill and instead let the ludicrously excessive Public Sector pension promises be reduced to the level that existing Plan assets can support without ANY Tax increases.


  4. What a wiz kid! He attended one of the country’s best high schools, got accepted into MIT (did a lot of drinking, partying, traveling around the country in a VW bus) and then kicked out of MIT. He decided to get serious and ended up in Trump’s Wharton. Wow!
    This guy was a genius, pragmatist and clairvoyant when it came to actuarial science.

    If only those in charge of pensions assets (and the politicians) had listened…


    • Posted by Tough Love on July 15, 2018 at 12:28 pm

      And HAD they listened, the promised level of benefits would have been much lower (to accomodate the higher TRUE costs).

      And then you’d be bitch-en about that.


    • Posted by Anonymous on July 15, 2018 at 3:28 pm

      Pat…..the article states that he was accepted to MIT at age 16 so it really isn’t that unusual that he wasn’t quite ready socially but obviously quite advance intellectually

      After completing his degree he was then accepted into the Wharton School of Business as a 50 something and obtained his advanced degree…

      Just wondering Pat, what university did you attend? Oh wait aren’t you the one who turned down a lucrative Wall Street financial job to work for the state or was that someone else?


      • ha, so funny. That would be someone else as I graduated from a mediocre high school in the top 30%! Not exactly Ivy league or wall street material. When I decided to apply myself after serving 4 years in the Marines (you’re welcome), I eventually graduated from Rider University, also much older than my alumni. Now while Rider is certainly NOT the BEST school, it has a decent rep. I chose to make my career with the State so I could have great benefits and pension. So far so good, but I am worried.


        • Posted by MJ on July 16, 2018 at 6:16 am

          Pat, I was asking only because your previous post seemed to be disparaging Mr. Gold’s accomplishments but perhaps I misread your post…….glad you are enjoying your retirement.


        • Posted by Tough Love on July 16, 2018 at 12:48 pm

          You have good reason to be “worried”.


  5. Posted by geo8rge on July 15, 2018 at 3:00 pm

    That Mr Gold was not better known is one symptom of why there is a pension crisis.
    I try to keep up somewhat with the pension headlines and I never heard of him until this Bury Pensions blog post. A google search on dates before his death does find much either.

    Not being particularly scholarly I cannot remember many suitable religious quotations for Mr Gold’s life and work and to be honest lack of recognition, I vaguely remember these:

    Jesus said to them, “A prophet is not without honor except in his own town, among his relatives and in his own home.” Mark 6:4

    Truly I tell you,” he continued, “no prophet is accepted in his hometown. Luke 4:24

    Jeremy Gold does not have a Wikipedia page, which means he is not ‘internet noteworthy’.

    Something Gold wrote does appear as a reference to the Actuary Wikipedia page:

    Forbes published an article written by him:

    Where Are The Screaming Actuaries? Jeremy Gold

    He was mentioned in an article in the Economist. If the link is dead keep trying, it came back to life for me.


    • Posted by Tough Love on July 16, 2018 at 6:48 am

      Jeremy Gold is to the actuarial (especially pensions) community what Steven Jobs is to the world of technical innovation.

      Didn’t know him, but was aware of his many accomplishments ……… was saddened to now hear that he passed.


      • Posted by Tough Love on July 16, 2018 at 7:22 am

        Actuary Mary Pat Campbell (“Stump”) just posted a memorial to Mr. Gold.


        Midway thru, under “Here is the conclusion of his MEP testimony:” we find:

         To avoid making matters worse than they already are, plans must, at an absolute minimum:

        o Pay the full price for newly earned benefits or reduce accruing benefits to match available funding.

        o Pay the interest on unfunded accrued liabilities.
        – – – – – – – – – – – – – – – – – – – —

        And Ms Campell adds ………… “What’s true for MEPs is true for public pensions.”

        So I highlight that for PUBLIC Sector Plans, if we can’t BOTH, (a) Pay the interest on unfunded accrued liabilities, AND (b) Pay the full price for newly earned benefits, THEN we must ….. reduce accruing benefits to match available funding.

        NJ, isn’t and can’t do (a) and (b) ………. but for purely self-interested political reasons WON’T reduce accruing benefits to match available funding.


      • Posted by Tough Love on July 16, 2018 at 9:34 am

        And another …………….


    • Posted by geo8rge on July 16, 2018 at 10:11 am

      UPDATE: Wikipedian “Malik Shabazz” has created a Jeremy Gold stub at Wikipedia formalizing Mr Gold’s status as noteworthy.


  6. Headline: honest actuaries are now extinct.


  7. Posted by SeeSaw Jr on July 16, 2018 at 12:42 pm

    Those videos are GOLD. And the pun is indeed intentional.


  8. Posted by Anonymous on July 16, 2018 at 1:56 pm

    A general comment.

    Jeremy Gold was iconic in his field. He deserves much more respect. If you are not aware of his work along with the work of Ronald J. Ryan and Barton Waring you are probably are not in the best situation to discuss the pandemic pension fund problem in a well-quantified and objective manor.


  9. Posted by Greg Lamon on July 16, 2018 at 8:54 pm

    Using the government bond rate as the discount rate by which to calculate a pension fund’s liability is dishonest if decades of investment returns of the fund exceed that level. Low-balling the figure available to the public by using the bond/Tbill rate in such a situation is presenting a unreasonably low estimate given the experience of the fund in such a situation, thus misleading the public..


    • Posted by Tough Love on July 16, 2018 at 9:04 pm

      Assuming a 7.5% rate (for EVERY future year, and in this VERY low-interest environment), and IGNORING the risks associated with investing in a manner to “potentially” reach such a return ………… and being able to do so ONLY because you have a sucker in the room (the Taxpayers) upon whom the cost of under-performance & risk can be foisted ……… is WORSE.


    • Posted by Anonymous on July 17, 2018 at 6:46 am

      It appears you have not studied the matter sufficiently. Only at the surface level does it seem inappropriate to use the lower more conservative bond rates. With a true understanding of how DB plans are intended to work and the history of their design and failure you would not have the view you do….. at least I would be that you would not.


      • Posted by Tough Love on July 17, 2018 at 7:01 am

        Well. there is a whole slew of Nobel level economists who disagree with you …….. and with very few exceptions, only those who make a living from it (pension actuaries) agree with you.


      • Posted by Tough Love on July 17, 2018 at 8:53 am

        It’s worth expanding on my above response to you ……….

        The “problem” with using a 7.5% rate to discount plan LIABILITIES (NOT ASSETS, which in NJ are far lower), is that doing so entails significant risk that earnings will be lower, and the cost (and risk) will be passed passed along to Taxpayers (who almost always get MUCH lower retirement security from their employers).

        A reasonable “compromise” is for the GUARANTEED level of Public Sector pensions to be based on valuations that use interest rates comparable to those commonly used in the valuation of Private Sector Plans (about 3.5% today), but pass along to Plan participants greater investment returns in the form of benefit increases. Essentially, it would operate similar to a Mutual Life insurance Police, which is CONSERVATIVELY priced (via the assumption of modest investment earnings) but passes along premium reductions (or increases in the amount of insurance) in the form of increased Policyholder dividends IF/WHEN greater than priced-for investment earnings materialize.
        That said, we both know what’s diving the ludicrous level of pensions now in place in Public Sector pensions …………… the insatiable GREED of Public Sector Unions/workers coupled with their Taxpayer-be-damned attitude, and our self-interested, contribution-soliciting, vote-selling, taxpayer-betraying Elected Officials.


        • Posted by Anonymous on July 19, 2018 at 10:40 am

          Ummm, I think you misread. If you read what I said you will find I am saying in fact it is MORE APPROPRIATE (sorry for caps) to use a lower discount rate. Are we not in agreement that allowed DR is what should be used? At least that is the position I take along side Gold, Waring, Ryan and many others including Nobel Laureate William F. Sharpe


          • Posted by Tough Love on July 19, 2018 at 1:18 pm

            My apology, somehow I read (in your first comment) your word “inappropriate” to be “appropriate”, so it appears that we are in agreement that interest rates MUCH lower than those currently used in Public Sector Plans’ discounting of Plan liabilities is the more appropriate way to go.

            Hopefully you see where this would lead……….. because materially lower discount rates would lead to materially greater annual contributions (which we clearly cannot afford), the balancing item would need to be material reductions in the value of future service accruals (either through lower formula-factors, increases in the age at which an unreduced pension can begin, use of actuarially correct early retirement factors, elimination/reduction of COLAs, etc.).

  10. Posted by Anonymous on July 19, 2018 at 1:38 pm

    Clearly (at least to me) lower DRs necessitate higher ECs. I assume you agree that the use of higher DRs are a big part of how DB plans got here. I also sense you would agree that these higher DRs were used as a way to achieve favorable short term views on income statement and balance sheet (private DBs) and budgeting/re-election priorities (public DBs).


    • Posted by Tough Love on July 19, 2018 at 2:49 pm

      I agree that the use of inappropriately high Discount Rates is a “big part of how DB plans got here”. I’m not sure if your abbreviation EC stands for EmployEE or EmployER contributions, but I definitely do NOT agree that higher employER contributions are appropriate.

      The ROOT CARE of NJ’s (and most other State’s) pension mess is because the promised Public Sector pensions are simply too generous (by every reasonable metric). It is quite easy to demonstrate (and I have done to on this Blog numerous times) that NJ’s Public Sector pensions are 2.5 to 4 times greater in value upon retirement than those typically granted the luck few Private Sector workers who are still accruing benefits in Final Average Salary DB pension Plans. And if NJ’s COLA suspension is ended, those multiples will INCREASE to over 3 to 5 times greater. Such extraordinary generosity is patently unfair to Taxpayers who get so much less from their employers.

      Layer ON TOP OF that the heavily subsidized (sometimes FREE) “platinum+” retiree healthcare benefits granted NJ’s Public Sector workers …….. vs typically NOTHING today in employer-sponsored retiree healthcare befits in the Private Sector …….. and it’s very easy to see that NJ does have a true “revenue” problem, but an “expense” problem driven by grossly excessive Public Sector pensions & benefits.


      • Posted by Tough Love on July 19, 2018 at 3:14 pm

        Ooophs …………….. “does” in my last sentence above should have been “doesn’t”


      • Posted by Anonymous on July 19, 2018 at 6:53 pm

        Yes all that is correct in my opinion. Public plans are are a fantasy of affordability.
        What I was saying about EC (employer contributions) is that the lower DRs mathematically force higher ECs (employer and/or employee). I was not speaking about it being appropriate but rather that it is an unavoidable mathematic result that lower DRs can only mean higher ECs hold all the things equal. We are on same page on all this and especially the debacle known as the public sector DB plan. That said, they (public Bs) were not the only ones to get ahead of their skis in granting future benefits albeit they are the worse of them.


  11. Posted by Anonymous on July 19, 2018 at 2:23 pm

    oh yea, and btw… I was responding to Greg lemon post not yours. Not sure why the reply was not attached to correct thread. I think you will find the exchange all makes sense now.


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