Archive for the ‘Actuarial Math’ Category

Governing Funding Ratios

The Tax Foundation picked up on recently released data from The Pew Charitable Trust on funded ratios of state pensions (based on data reported by the states themselves) and came up with a handy chart:

State pension plan, pension plans, pensions by state, pension fund

The Tax Foundation did the same thing a year ago and in most cases the ratios went up, significantly in some states that also happened to get new governors around the time the new numbers were calculated.
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ASOP Cover

According to Wikipedia:

The [American] Academy [of Actuaries (AAA)], in 1988, created the Actuarial Standards Board (ASB) as an independent entity, supported by AAA staff. The ASB serves as the single board promulgating standards of practice for the entire actuarial profession in the United States. The ASB was given sole authority to develop, obtain comment upon, revise, and adopt standards of practice for the actuarial profession.

They call these rules Actuarial Standards of Practice (ASOPs) and the ASB just came out with their second exposure drafts on two of them having to do with the selection for measuring pension obligations of:

  • Economic Assumptions (ASOP 27), and
  • Demographic and Other Noneconomic Assumptions (ASOP 35)

It makes for interesting reading since, in real life, the assumptions that significantly impact on contributions (mortality and interest rate) are promulgated by either the government (private plans) or politicians (public plans) and both ASOPs, if they are supposed to provide guidance to pension actuaries, could consist of the line:

Do what you’re told.

But what if you’re told to do something stupid? Do you have an obligation to say anything? It looks like you do if the entity telling you to do something stupid also sponsors the plan.
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Dodgy CAFR Pension Liabilities

The value of pension liabilities should be predictable from year to year as more benefits accrue, continuing actives get closer to retirement, and retirees get closer to death or actually die. A good estimate in a mature plan without any major benefit or demographic changes is to expect annual increases of 3% to 8% which is what the Pew Charitable Trusts annual funding gap studies, which they have been doing since 2003, show. However, after putting that Pew data into a spreadsheet it seems some states (California in 2016 and New Jersey in 2017) are getting creative.

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NJ Vals 7/1/18 (6): Phony Assets

According to the New Jersey Division of Investment there was about $78 billion as of June 30, 2018 in the Public Employee Retirement System but when it came time to determine contributions for the July 1, 2018 valuations that value jumped to over $100 billion.

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NJ Vals 7/1/18 (5): Phony Funded Ratios

The official unfunded liability for state-funded plans dropped from $58 billion last year to $43 billion this year. How did this happen? Blatant fraud.

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NJ 7/1/18 Vals (3): Teachers’ Net Normal Cost


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That less-than-$1-billion amount is the total Net Normal Cost as of 7/1/18 as calculated by Cheiron in their valuation reports which happens to be lower than what Milliman and Buck/Conduent calculated in prior years. The biggest drop came in the Teachers’ plan:

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NJ 7/1/18 Vals (2): Contributions

Adding up the Net Pension Contribution amounts from the exhibits in the July 1, 2018 valuation reports and applying the arbitrary 70% factor to the state portions this is how the $3.8 billion amount for FY20 was developed:

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NJ 7/1/18 Vals (1): Cheiron

Valuation reports as of July 1, 2018 for the New Jersey Retirement System have started appearing on the state website. with Cheiron now the actuaries. This series will do our usual updates but since only three of the seven valuation reports are up so far we first look at what Cheiron is bringing to the reports, starting with the State Police Plan report.

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NJ GASB Games

Service cost under GASB 67 rules for government plans is defined as the value of benefits earned during a reporting period. In a retirement system like New Jersey’s with a stable workforce and no changes in the terms of the plan you would expect this cost to be steadily increasing with inflation. However, in order to generate ‘good’ news on funded status of the system, the actuaries took some liberties with the calculation of this Service Cost this time around.

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N.J.’s troubled public-worker pension system is actually getting healthier. Here’s what the latest numbers show.

That is the nj.com headline which based their conclusion on this paragraph from page 13 of 87 of the recently released June 30, 2018 CAFR:

Based on GASB 67and actuaries’ GASB 67 disclosures for State fiscal year2018,for the defined benefit pension trust funds, the combined state and local ratios of plan fiduciary net position as a percentage of the total pension liability was 38.41% and the net pension liability as a percentage of covered payroll was 499.78%. For the prior year, the combined state and local ratios of plan fiduciary net position as a percentage of the total pension liability was 35.79% and the net pension liability as a percentage of covered payroll was 551.39%.

Further in the CAFR there were breakdowns of the development of these numbers by plan going back to 2014 but there was no totals page so we did one and it shows that the games played last year are continuing:

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