Posts Tagged ‘milliman’

Christie to “Work With” NJ Actuaries

“We’ll work with the actuaries to make the actuarially appropriate payment.”

Chris Christie on Ask-the-Governor


The full Q&A on the pension payment question from last night:

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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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The Full Milliman Report

As requested by Detroit COO Chris Brown, Milliman, Inc. began an “analysis of the City of Detroit’s actuarial liabilities in support of the City and Financial Advisory Board (“FAB”). ”  They sent Mr. Brown a ten page letter on July 6, 2012 which, after some Very Rough Preliminary Guesstimates (VRPG), put the unfunded pension liability at $5.6 billion and the liability for retiree health care at $6.6 billion ($3.1 billion for DGRS and $3.5 billion for PFRS).

In prior blogs I reviewed how they arrived at their pension numbers in some detail.  The rest of the letter is a warning that GASB has some ideas that would further inflate that pension underfunding number and another VRPG on the value of retiree health benefits.

Please review the letter and tell me what strikes you.  For me there’s just this one other thing to note.

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Milliman on Mortality: Hope You Die

The Milliman report criticizing assumptions used by Detroit’s erstwhile actuaries Gabriel Roeder Smith & Company (GRS), whose reports showed Detroit’s plans to be among the healthier public plans in the nation, kicked off with a scathing indictment of mortality assumptions used by GRS which Milliman characterizes as too ‘optimistic’.

You tell a layman that mortality assumptions are ‘optimistic’ and the assumption would be that people are living longer but in the perverted world of public pension funding an optimistic assumption (and they’re all optimistic) is one that lowers costs and having retirees die sooner is good news.  Having all 20,000 Detroit retirees contract the plague would, in the world of big benefits and low costs, be cause for unbridled celebration by all concerned (except of course the 20,000 decedents).

Quoting from the Milliman report:

While we have not received experience data to perform any tabulation, the assumptions indicate to us that the mortality rates of Detroit public employees are significantly worse than national averages.  While it is possible that the current assumptions are appropriate, as a VRPG for item D in the table above, the liability has been increased by 10% as an adjustment to reflect unbiased mortality rates.

In general for all actuarial assumptions, the more optimistic the current assumption is, the higher the likelihood that the assumption will not be met, leading to higher costs later as actuarial losses accumulate.

The mortality assumption used by GRS in their June 30, 2011 General Retirement System report (page E-1) that Milliman found so objectionable:

The mortality table used to measure retired life mortality was 110% of the RP-2000 Combined Table for males and 110% of the RP-2000 Combined Table set back 2 years for females. These tables provide a margin for mortality improvements of approximately 15%.

The mortality assumption used by Milliman in their June 30, 2012 valuation of the New Jersey Teachers’ Pension and Annuity Fund (page 61):

Rates of mortality vary by age, gender and type of retirement. A generational approach is applied using Scale AA to apply for future mortality improvement for non-disabled annuitants. The base year is 2000 for males and 2003 for females.

Notice much difference?  What if you do a VRPG of the retiree populations in each report.

In the Detroit General Retirement System there are 11,555 retirees getting $219 million in annual payouts which GRS values at $1.984 billion which comes out to an average annuity factor of 9.06.

In the New Jersey Teachers Pension and Annuity Fund there are 89,308 retirees getting $3.46 billion which Milliman values at $32.4 billion which comes out to an average annuity factor of 9.36.

Bumping up that GRS factor by 10% would bring it to 9.97, far above what Milliman actuaries are assuming for at least one public plan in their regular day jobs.

Milliman’s Detroit Report

The report, dated July 6, 2012, is ten pages long and it is the justification Detroit is trying to sell to its creditors and pensioners that their pension funds are severely underfunded.  I have the report but on the bottom of each page appears this safety warning:

This analysis was prepared solely to provide assistance to the City of Detroit.  Milliman does not intend to benefit and assumes no duty or liability to other parties who receive this work.  Milliman recommends that any third party recipient of this analysis be aided by its own actuary or other qualified professional when reviewing the Milliman analysis.

Obviously this is for the protection of certain stakeholders who might be inclined to conclusions that are too correct.  So I have decided to walk you through aspects of the report on a daily basis before springing it all on you.

First up, Milliman took the June 30, 2010 official valuations prepared by Gabriel Roeder Smith & Company (GRS) and applied a methodology similar to what I have been doing to arrive at what, in the case of Detroit, they believe to be the real funded status of the two main plans.

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Detroit Questions Really Answered

Some have been asked, others unasked, but the striking aspect of this dialogue on Detroit’s pending default on benefit promises is that nobody seems to want to provide (or hear) Real Answers, though most of them are out there for those who look…….and reason.  Here are mine.

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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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