Posts Tagged ‘grs’

Fingering Public Pension Actuaries

It is only a matter of time before the public pension crisis, as enabled by a cabal of actuaries devising assumptions and methods primarily to understate contributions, finds fall guys.  It happened this week in Detroit and to Gabriel Roeder Smith & Company (GRS) as reported in the New York Times:

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Fact Checking Detroit Pension Coverage

Detroit cutting pensions has hit the mainstream as have some dodgy ‘facts’.  For example, Huff Post reported:

Are retirees going to lose their pensions?
Maybe. Rhodes ruled Tuesday that pensions, like any contracts in bankruptcy, can be broken. But he also warned city officials that they’ll need to justify any deep cuts that could threaten the lives of retired workers. There are about 23,000 retirees and 9,000 city workers. Most of them receive pensions that are less than $20,000 annually.

Where did those numbers come from?

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The Myth of Actuarial Independence

I spoke with a Reuters reporter on Monday about the Detroit pension-funded-status imbroglio but didn’t feel I sufficiently got across my opinion of the real role of public plan actuaries.  Perhaps Milliman, Inc. (Milliman) will do it for me as they go rogue on the profession.

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Buying Actuarial Opinions

Never has the curtain of deceit in public pension funding been open so wide as in Detroit’s clumsy attempt to create an underfunding in their two pension plans within the parameters used by public plan actuaries for decades to create the appearance of quasi-solvency.   Detroit had been paying Gabriel Roeder Smith & Company (GRS) millions of dollars over the years to mask the true cost of pension liabilities accruing.  Then last May when they needed to have the plans be severely underfunded and unsustainable they paid Milliman, Inc. (Milliman) $350,000 for that opinion (proffered on June 4, 2013 with the general public getting it today) for both the Detroit General Retirement System (DGRS) and the Police & Fire Retirement System (PFRS).

Resist the impulse to wade through these jargon-laced reports.  They were not designed for anyone to understand.  They were designed to have their conclusions accepted without question.

I do not accept them and they raise four questions that are obvious once isolated.

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How Actuaries Betray Detroit Retirees

My guess is that as early as this week 20,000 retirees in Detroit’s two retirement systems will have their pensions reduced by a flat percentage (25%) with a cap ($50,000 annually?) and no reductions for de minimus amounts (under $10,000 annually?) so that part of the pension trust fund can be used to repay bondholders.

The Detroit Free Press editorialized today against any benefit cuts since retirees were not to blame but failed to finger any culprit.  I will.

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Battling Actuaries in Detroit

Thomas “Hit Man” Hearns, Joe Louis, Eddie Futch, Sugar Ray Robinson.  The list of fighters with links to Detroit is long and impressive.  So it is with particular sadness that Detroit is hosting a battle royale within a profession completely devoid of any pugilistic skills.

Actuaries can’t fight and don’t often need to.  Hiding behind a of phalanx of manufactured arcana that daunts the quizzical we epitomize GBS’s definition of a profession as a conspiracy against the laity and since we deal with guessing about events far into the future we get to provide whatever conclusions our paying clients desire*.

But what happens when two clients have conflicting desires that they get two actuaries to sate?

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Detroit’s Fairy Tale Numbers

When Detroit wanted to borrow in the bond market or reduce pension contribution levels or increase participant benefits or even make pathetically weak reforms they gave everyone the impression that their pension system was only ‘modestly underfunded’ (estimated to be $644 million for Police and Fire).  Yesterday they had the need to default on their bonds and, as it turns out in regard to their Unfunded Actuarial Accrued Liability (UAAL) for pensions, Detroit’s Proposal for Creditors  explains on page 23:

“Further analysis by the City using more realistic assumptions (including by reducing the discount rate by one percentage point) suggests that pension UAAL will be approximately $3.5 billion as of June 30, 2013.”

How does a modestly underfunded plan collapse in one day?  The headline at the top of page 31 of that Proposal tells all you need to know about Detroit (and the the actuarial profession):

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