STUMP » Articles » Actuarial History... Which is Not Really History » 9 November 2018, 13:38

Where Stu & MP spout off about everything.

Actuarial History... Which is Not Really History  

by

9 November 2018, 13:38

Via John Bury, I found out the Office of the Actuary of New York City is making a documentary about their chief actuaries (that’s fairly benign), but they’ve been highlighting Jonathan Schwartz (chief actuary of NYC, 1974-1986) in a few tweets.

Before I get to the tweets, let me give you background — from 10 years ago.

SOME HISTORY OF JONATHAN SCHWARTZ

Jonathan Schwartz made headlines back in 2008 when he had this to say:

Mr. Schwartz, a former city actuary, said that he routinely skewed his projections to favor the unions — he called his job “a step above voodoo” — and admitted that he had knowingly overreached on the pension bill by claiming that it cost nothing, either now or in future years. “I got a little bit carried away in my formulation,” he explained.

Yeahhhh, that wasn’t a good look, and ended up with some pissed-off actuaries:

05-16-2008, 10:55 AM
DaBears
wouldn’t this guy be a candidate to be referred to the ABCD? Standards of communication etc?

….
05-16-2008, 11:34 AM
Random Walk
If the ABCD had existed in 1986, I wonder whether he would have been referred to the ABCD after the incident that lead to his resignation as an actuary for NYC? Too late now, I suppose.

By the way, the ABCD is the Actuarial Board for Counseling and Discipline. We’ll be coming back to that.

As for the 1986 resignation:

Mr. Schwartz resigned from his city job in 1986 after admitting he had given false testimony in a deposition in a lawsuit brought by female employees who claimed that their pension payments were lower than those made to their male counterparts.

This guy seems to have an integrity problem.

Back to the angry actuaries:

05-17-2008, 07:59 AM
Shaft
This is all you need to know about the guy. He’s a liar and he admitted being a liar. The fact he’s an actuary is secondary.

….

06-03-2008, 08:51 AM
campbell
Mary Pat Campbell

Continuing the saga of this actuary:
http://actuary.ca/actuarial_discussi…d.php?t=140126
http://www.nytimes.com/2008/06/03/ny…hp&oref=slogin

Getting a little more specific about the disparities in Mr. Schwartz’s calculations and those from other actuaries.

Quote:
As a result, legislative leaders said they would no longer rely on Mr. Schwartz’s work, and a disciplinary board affiliated with the American Academy of Actuaries has begun a review of Mr. Schwartz’s conduct.

I knew a few people had made complaints to the ABCD when the first article was published, so it looks like this is going forward.

Oh, and it did resolve. You can read the judgment here, in which the Academy followed the findings of the ABCD.

THE SUBSTANTIVE COMPLAINT

Let’s look at that last NYT article, that I linked back in 2008: Pension Costs Off by $500 Million, City Finds By DANNY HAKIM, JUNE 3, 2008

ALBANY — An actuary [Jonathan Schwartz] paid by public employee unions and yet relied upon by the State Legislature to determine the cost of proposals affecting New York City’s pension system underestimated their ultimate cost by at least $500 million, city documents and other records show.

In the hundreds of bills for which he has provided estimates to lawmakers since 2000, the actuary, Jonathan Schwartz, said legislation adjusting the pensions of public employees would have no cost, or limited cost, to the city.

But just 11 of the more than 50 bills vetted by Mr. Schwartz that have become law since 2000 will result in the $500 million in eventual costs, or more than $60 million annually, according to projections provided by Robert C. North Jr., the independent actuary of the city pension system, and by Mayor Michael R. Bloomberg’s office.
….
The Legislature relied almost exclusively on Mr. Schwartz — a consultant to District Council 37, the umbrella group of municipal unions as well as to unions representing firefighters, teachers, detectives and correction officers — to determine the cost of pension bills involving New York City employees.

Despite legislative leaders’ assertions that they undertake independent financial analyses of the pension bills, neither the Senate nor the Assembly could provide any records to bolster that claim.

Mr. Schwartz did not return calls seeking a comment for this article.

The episode has heightened the Legislature’s reputation for being cozy with labor and for lavishing benefits on public employee unions.
….
The stakes are especially high on pension bills, because under the State Constitution, once public workers are granted pension benefits, they cannot be reduced, even if they cost much more than expected.

Yeaaaaaah, about that… (note: California has a similar constitutional “protection”.)

The most costly legislation analyzed by Mr. Schwartz was a bill passed in 2005 that entitled city employees who worked on the ground zero cleanup to disability pensions worth 75 percent of their salaries if they were later found to have diseases including cancer, respiratory illness and a variety of skin ailments.

City officials were concerned that the measure was written so broadly that workers could qualify even if their illnesses were unrelated to the ground zero effort.

Mr. Schwartz claimed the bill would cost the city no more than $5 million annually. In a detailed analysis, Mr. North’s office projected that the bill would lead to a net increase in future pension benefits of $495 million, costing the city $53 million a year.

Another law, passed last year, allows auto mechanics, electricians and other selected tradesmen who work for the city to retire at age 50. Mr. Schwartz said the bill would have no cost; The city said it would cost $150,000 per employee who opted into the program.

WTF. How the hell can one claim that?

Considering that 113 employees bought into the program, the cost to the system will be roughly $17 million over time, or about $2 million annually to finance.

Uh huh. What a shock.

While the “voodoo” remark pissed off a lot of actuaries (and thus many complained to the ABCD), he also got dinged for this shoddy work. FWIW, he already did what the Academy required of him as part of his discipline, and while he’s listed as officially retired in the Actuarial Directory, he’s still a member of the SOA and Academy, as far as I can tell.

LIONIZING THOSE WHO UNDERMINED THE PENSIONS?

Here are the tweets that John Bury brought to attention with his post.



To the person who thought this was a good idea: You cannot claim to not know his background. He resigned in ignominy in 1986, and he is being quoted as per Bury:

“part of the job is to persuade decision makers – no, defined benefits are neither obsolete nor unaffordable.”

I think the meaning is clear, even if normal speech in literal transcription can confuse a bit.

Schwartz was there to say that defined benefit pensions aren’t obsolete, and they are affordable.

And he “persuaded” that these were affordable… by fudging the numbers. Actuarial “voodoo” if you will.

He actually undermined the DB plans by lowballing the cost. Only in the short run do those in the unions get their payouts, but if it turns out the costs (which are ongoing – people who retired at age 50 back in 2008 have a high probability of still being alive, for instance) are too high….

Pension benefits, even public pension benefits, can and do get cut. I mentioned the Calpers cuts to bankrupt plans and we know about Detroit, Rhode Island, and Prichard, Alabama (forget about cut — pensioners got zero for over a year).

The mechanism of cutting may be “unconstitutional”, but reality wins against constitutions trying to make unfulfillable promises.

You can tell the government that they can’t do something – negative guarantees – but you can’t use a piece of paper to make sure money appears out of nowhere.

So kudos all around.

via GIPHY

[I’m being sarcastic]

I don’t think I’ll be able to stomach whatever the finished project will be. But we’ll see, I guess.


Related Posts
STUMP Classics: Public Pensions "Truths" and "Myths" -- Now Exposed
Public Pension Roundup: Bailing out Pensions, The Return of Pension Envy, Kentucky Lawsuit, and more
Update: Why Have "Full Contributors" Lost So Much Ground In Twenty Years in Public Pensions?
| Main |