STUMP » Articles » Public Pensions Watch: Tell The Actuaries What You Need to Know » 10 November 2014, 06:25

Back in July, I mentioned the Actuarial Standards Board is seeking comment on public pensions actuarial practice:

By the way, while this request for comments is targeted at actuaries, and specifically actuaries who work in the public pension space, but they do require responses to be signed.

I am willing to review other people’s responses to this request for comment before they send it to the ASB, and for those who want to remain anonymous, I may be convinced to make the comment under my own name (the first is a blanket offer (unless I get too many responses) and the second is a conditional offer. I will not necessarily agree with a lot of people. I may be able to find another person who does agree with you, though, and be willing to submit the comment on your behalf.)

The deadline for comments is November 15, 2014 (and if you want me to review…my deadline is October 15, 2014. I am holding my comments until then.)

My email address is marypat.campbell@gmail.com if you want to discuss this further.

My offer is still open, but given the deadline is Saturday, please give me anything for review ASAP.

I sent in my own comment letter, where I recommended a historical exhibit (going back ten years, possibly more) in the actuarial report, showing the change in the unfunded liability by cause for each year.

This analysis is already made on a single year basis (the change between actuarial reports), but given the long-term nature of the development of public pension liabilities and their underfunding, I think it requires multiple years so that one can see exactly where things are going wrong. (SPOILER: it’s almost always undercontributions, though too-high assumptions for investment returns are also up there. Mortality/longevity considerations take much longer to develop)

As noted above, they want to hear from non-actuaries as well. Here is one letter from Jim Palermo, CFA:

As a financial professional and CFA charter holder, a two-term Village
Trustee in La Grange, Illinois and a past ABCD complainant, I bring a principal’s perspective
to the completeness and understandability of public pension valuation reports, how the
reports are used by public officials and how they may be enhanced to increase their
effectiveness for the various stakeholders.

Since my election 2007, I have been concerned that Illinois municipal budgets do not
adequately fund local police and fire pensions. A common refrain of elected officials is
“We’ve always contributed 100% of the amount requested by the pension boards” though
most elected officials have neither analytic skills to recognize that due to stale and
unreasonable assumptions the requested contributions are too small nor the inclination to
contribute more than the plans’ trustees request.

…..
It shouldn’t come as news to the ASB that many people perceive actuarial science as an
arcane field that is nearly impossible to understand except by its professionals and the most
dedicated laypersons. As such, with a lexicon all its own and an array of economic and
demographic assumptions which are often employed with neither explanation nor
validation, few in the public realm can comprehend the reports well enough to critically
analyze the true health of the public pension plan. Furthermore, a ‘trust the expert’
mindset exists among elected officials and their appointed staff, making officials disinclined
to speak up and ask questions. Actuarial valuation reports need to be improved to foster
better understanding and conversation among the various stakeholders.
……
It is becoming increasingly clear that too few public pension stakeholders—taxpayers,
elected officials, pension trustees and labor leaders—possess a sufficient understanding of
actuarial details to make fully informed decisions on state and municipal pension and
budget matters. The actuarial profession must take the lead in making actuarial valuations
more informative and easier to use for non-professional policy makers who wish to improve
the retirement security of public employees and reduce risk for taxpayers.

Read the whole thing.

All the comment letters can be found here.

This round of comment is unlikely to be the end of the matter, what with the Detroit bankruptcy ending with current retirees getting their benefits cut and pensions being large items in the bankruptcies of Stockton and San Bernadino.

That said, this is a good opportunity for interested parties, actuarial or not, to make a comment. Please consider doing so.