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  #201  
Old 09-11-2016, 11:21 AM
Jeremy Gold Jeremy Gold is offline
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On 9/7 after delivering an ultimatum to the authors of Financial Economics Principles Applied to Public Pension Plans, the SOA published a November 2015 version of our paper. They ignored our rights and affixed a copyright statement favoring the AAA and the SOA.

Importantly, we had offered the SOA a better version of the paper dated August 31, 2016. We had also offered to recruit discussants and add authors' responses to the discussions. This approach, which can be seen on the full version of Reinventing which can be found on the SOA website (39 page version), creates a superior product to the paper alone.

The August paper is available here: http://www.pensionfinance.org/papers/PubPrin.pdf

It is still a working paper and we may make some further edits. We expect to add intelligent discussions and responses.
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  #202  
Old 09-11-2016, 11:37 AM
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Mary Pat Campbell
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Thanks for the 2016 paper. I will refer to that one in responding.
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  #203  
Old 09-17-2016, 08:55 AM
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http://www.nytimes.com/2016/09/18/bu...ooks.html?_r=0

Quote:
Much of the debate surrounded the routine practice of translating future pension payments into today’s dollars, which is called discounting. The tiny pension plan at Citrus Pest Control District No. 2 shows clearly what the problem is.


With everybody either retired, or about to be (Mr. Houser will retire later this year), there is no guesswork in determining everybody’s pensions. The actuaries at Calpers project each of the future monthly payments due to Mr. Houser and the other five retirees, assuming they will live to age 90. (Mr. Hoesterey is not included because his retirement benefit is the new 401(k) plan.) Then, they translate all those future payments into today’s dollars with a rate — often called a discount rate. This is exactly how a lender would calculate a home mortgage.

The problem is, which rate should be used? An economist would say the right rate for Calpers is the one for a risk-free bond, like a Treasury bond, because public pensions in California are guaranteed by the state and therefore risk-free. And that’s what Calpers does when it calculates market values. It used 2.56 percent when it calculated the bill for the pest control district, producing a $447,000 shortfall.

But the rest of the time, Calpers and virtually all other public pension funds use their assumed annual rate of return on assets, now generally around 7.5 percent. Presto: This makes a pension appear to have a much smaller liability — or even a surplus.

That was the case with the pest control district for years. And since there seemed to be a surplus, Calpers said the district owed no annual contributions. Calpers’s numbers hid it, but the six members’ pensions were going unfunded.

“Every economist who has looked at this has said, ‘It’s crazy to use what you expect to earn on assets to discount a guaranteed promise you have made. That’s nuts!’” Professor Sharpe said.

But what he calls crazy is enshrined in the actuarial standards. And since adhering to the standards makes public pensions look affordable, there is a powerful incentive to preserve those standards.

“Actuaries shamelessly, although often in good faith, understate pension obligations by as much as 50 percent,” said Jeremy Gold, an actuary and economist, in a speech last year at the M.I.T. Center for Finance and Policy. “Their clients want them to.”

Mr. Gold was also a ringleader of that stormy professional meeting in 2003. Since then, there have been more conferences, monographs, speeches, blue-ribbon panels and recommendations — to say nothing of an unusual spate of municipal bankruptcies and insolvencies in which ailing pension plans have played starring roles. And yet little has changed.

Even as Citrus Pest Control District No. 2 was scrambling to find the cash to pay its unexpected bill this year, another fight broke out within the American Academy of Actuaries, which represents the profession in Washington, over the same issues.

An academy task force had commissioned a paper on how financial economists would measure public pensions. But during the peer review process, the opus was spiked, the task force disbanded and the four authors — Mr. Gold among them — barred from publishing the work elsewhere.

Accusations of censorship flew. The four authors said the academy’s copyright claims were false. The academy’s president, Thomas F. Wildsmith IV, said in a statement to members on the academy’s website that the paper “could not meet the academy’s publication standards.”

In a separate email message to The New York Times he said the academy was committed to helping the public understand the different measurements, and provided a position paper concluding that both measures are useful, but for different purposes.

Then the Society of Actuaries, which handles the education and testing of actuaries, joined the fray. It posted the suppressed paper on its own website, albeit with the authors’ names removed. It claimed to hold the copyright jointly with the academy. It also added a statement that the paper did not reflect the position “of any group that speaks for the profession” but called the authors “knowledgeable.”

The society’s president, Craig W. Reynolds, sent an email message citing other efforts “to develop strong funding programs that are responsive to a rapidly changing environment.”

The four authors then issued a revised version of their paper, with their names on the front — and a claim that they held the copyright. The paper, which runs 19 pages, says in brief: Use market values for public pensions.

Professor Sharpe noted that Calpers’s market-based method was “virtually the precise approach advocated in this paper.”

I love it when we make the pages of the NYT.
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  #204  
Old 09-17-2016, 09:37 AM
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Er, not in that way....

I didn't read the whole thread. Did the AAA give any plausible reason for suppressing the paper?

And seriously, the SoA published the paper but REMOVED THE AUTHOR'S NAMES?! WTF?
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  #205  
Old 09-17-2016, 10:09 AM
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Originally Posted by campbell View Post
http://www.nytimes.com/2016/09/18/bu...ooks.html?_r=0

I love it when we make the pages of the NYT.
The hilarious thing is that the SOA loves to talk about the "look in the mirror" test and "imagine appearing on the front page of the NYT" as two ethical standards at the FAC.

The leaders of this profession don't even take their own advice. Embarrassing
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  #206  
Old 09-17-2016, 10:16 AM
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Quote:
The actuaries at Calpers project each of the future monthly payments due to Mr. Houser and the other five retirees, assuming they will live to age 90.
Maybe that's the only way their audience could understand, but I bet this is not what they do. Probably that's the author's attempt to describe life expectancy. Even if he is using the expected age at death rather than a single assumed age at death, unless all five are close to the same age, it's unlikely the expected age at death for each is 90. (Even if you use the same mortality table for all, the expected age at death of someone age 65 and someone age 75 is not the same.)
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  #207  
Old 09-17-2016, 11:14 AM
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Quote:
Originally Posted by Gandalf View Post
Maybe that's the only way their audience could understand, but I bet this is not what they do. Probably that's the author's attempt to describe life expectancy. Even if he is using the expected age at death rather than a single assumed age at death, unless all five are close to the same age, it's unlikely the expected age at death for each is 90. (Even if you use the same mortality table for all, the expected age at death of someone age 65 and someone age 75 is not the same.)
Wow. You must be an actuary -- always focusing on the big picture.
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  #208  
Old 09-17-2016, 12:24 PM
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Quote:
Originally Posted by Gandalf View Post
Maybe that's the only way their audience could understand, but I bet this is not what they do. Probably that's the author's attempt to describe life expectancy. Even if he is using the expected age at death rather than a single assumed age at death, unless all five are close to the same age, it's unlikely the expected age at death for each is 90. (Even if you use the same mortality table for all, the expected age at death of someone age 65 and someone age 75 is not the same.)
Well, I certainly hope to heaven they are not using a mortality table that terminates with qx=1 at age 90.
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  #209  
Old 09-17-2016, 04:47 PM
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Originally Posted by PeppermintPatty View Post
Er, not in that way....

I didn't read the whole thread. Did the AAA give any plausible reason for suppressing the paper?

And seriously, the SoA published the paper but REMOVED THE AUTHOR'S NAMES?! WTF?
there are so many layers of wtfery i'm just too tired to deal with it


anyway, that's why I waited for Jeremy et al to put out their preferred version. I knew there would be some deliberate hackery on their paper, so I wanted to see the authors' preferred version.
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  #210  
Old 09-17-2016, 04:51 PM
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Quote:
Originally Posted by Dismal Science View Post
The hilarious thing is that the SOA loves to talk about the "look in the mirror" test and "imagine appearing on the front page of the NYT" as two ethical standards at the FAC.

The leaders of this profession don't even take their own advice. Embarrassing
well, they're covered. it's not on the front page

Quote:
A version of this article appears in print on September 18, 2016, on page BU1 of the New York edition with the headline: A Sour Surprise for Public Pensions. Order Reprints| Today's Paper|Subscribe
it's only on the front page of the business section in the Sunday edition. So there
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