STUMP » Articles » Public Pensions Actuarial Valuations: Point-Counterpoint-DENIED! » 3 August 2016, 12:07

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Public Pensions Actuarial Valuations: Point-Counterpoint-DENIED!  


3 August 2016, 12:07

A public pensions-related actuarial task force has been disbanded:

The American Academy of Actuaries and the Society of Actuaries Monday abruptly disbanded its longtime joint Pension Finance Task Force, objecting to a task force paper challenging the standard actuarial practice of valuing public pension plan liabilities.

“This paper (is) being censored by the AAA” and SOA, said Edward Bartholomew, who was a member of the former task force, in an interview. “They didn’t want it to get out.”

Others who were members of the task force also said in interviews the two actuarial groups are trying to suppress publication of the paper.

A joint memorandum dated Monday announced the disbanding of the task force to its members.

The memo was jointly written by Thomas F. Wildsmith IV, president of the Washington-based academy and president and senior manager of public policy at Aetna Inc., Washington, and Craig W. Reynolds, president of the Schaumburg, Ill.-based society and principal and consulting actuary at Milliman Inc., Seattle.

As reasons for disbanding the task force, the two presidents cited a “nebulous” governance structure of the task force and noted it was always “intended to be a temporary group.” The task force was formed in 2002. In addition, the memo noted “it has become clear projects that the PFTF would like to complete … are becoming increasingly difficult to complete under the joint governance model.”

We’ve had “permanent” working groups that lasted fewer years, in the actuarial societies.

That said, there may be other things going on here. The SOA and AAA simply do not play well together at this point.

If you’d like to see a small window into the growing hostility, check out my post from 2015 on the Battle of the Actuarial Organizations. Some of the SOA/CAS tiff has died down, and I think we’re on better terms with them, but I understand the AAA situation is as bad as it was then. Maybe worse.

But here’s the bit that gets me.

Ed Bartholomew posted a dropbox link to a copy of the letter. I will point out this paragraph, also noted in the P&I piece:

As a work product of the joint PFTF, the paper, Financial Economics Principles Applied to Public Pension Plans, was – like the predecessor paper 10 years ago – intended to be published by the Academy and the SOA as a jointly owned and copyrighted paper. It appears this is no longer feasible, and neither the SOA nor the Academy will be publishing the paper or endorsing it. Because the paper was the work of the joint Task Force, we do not think it would be appropriate for members of the Task Force, as individuals, to take the existing paper and simply publish it somewhere else. We recognize that some of the individuals who have been on the PFTF have their own personal ideas and views on these topics, and the Academy and the SOA encourage those individuals to express those ideas in other forums. But they cannot use the existing paper, with the particular expressions of ideas as developed by the Task Force, as the vehicle to do so.


You’ve got to keep in mind that this paper was written by specific people, and these individuals want the paper published. But it doesn’t need the Task Force’s name, just their own.

But no.

Back to the P&I piece:

Current public plan practice uses the long-term investment return of assets to value liabilities. The paper “challenged” that practice, said Mr. Bartholomew, a Washington-based independent pension consultant and former chief financial officer of the Inter American Development Bank, Washington, who helped oversee its more than $3 billion defined benefit pension plan.

“The issue came to a head with our attempt to get the paper published,” Mr. Bartholomew said.

When the academy and SOA leadership made their objections to the paper known, the authors offered to remove the task force label and have the society publish the paper under co-authors’ names only, while having side-by-side critiques written by actuaries opposed to its conclusions, members of the former task force said. But the academy and society refused to agree, the members said.

Not even a point-counterpoint analysis.


Mind you, both the SOA and AAA have had public pension-related groups put out various pronouncements themselves.

The SOA had its Blue Ribbon Panel on Public Pension Funding. (not the same as valuation, mind you.) Here was their report. From the summary:

Discount rates. The Panel recognizes that
historical returns, adjusted for expected
changes in future conditions, are a common
reference point. However, the Panel believes
that the rate of return assumption should be
based primarily on the current risk-free rate
plus explicit risk premia or on other similar
forward-looking techniques.

So, at least that group was willing to put that out there.

Let’s check out the Academy side: Here’s their page on public pensions. Of course, they’re my source I point to when I point out the lie of the 80% funding myth. They’ve got a nice issue brief on the different purposes of discount rates in pension valuations. Here’s a paper from 10 years ago on applying financial economics principles to pension valuation, which seems relevant to the discussion.

I believe this new paper was to be an extension of the 2006 paper, just applied to public pensions.

Anyway, I hope the authors can rewrite the paper well enough to avoid any legal action on the part of the SOA or AAA.

Luckily, there’s plenty of software out there, some intended to detect plagiarism, that can help them make sure there are enough differences to prevent trouble.

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