There's an old joke actuaries tell about themselves which sort of sums of the unglamorous nature of a lot of their work. It asks, what do two actuaries do on a date for fun? They sit around figuring out one another's life expectancy.
Okay, that's not exactly the stuff of the Improv. But these days it's also untrue if you are an actuary dealing with public sector pensions these days. That's a far more challenging and dynamic world than the one traditionally confronting the profession, which is why the American Academy of Actuaries devoted a big discussion at this year's annual meeting to the provocative topic of whether it's possible for cities and states to avoid ruin after having built up some $4 trillion in unfunded pension liabilities.
Okay, that's not exactly the stuff of the Improv. But these days it's also untrue if you are an actuary dealing with public sector pensions these days. That's a far more challenging and dynamic world than the one traditionally confronting the profession, which is why the American Academy of Actuaries devoted a big discussion at this year's annual meeting to the provocative topic of whether it's possible for cities and states to avoid ruin after having built up some $4 trillion in unfunded pension liabilities.
Not surprisingly, some of the participants blamed the model currently in use, in which politicians get to make promises to employees that they can get away with not paying for now by simply building unrealistic projections into their long-term models. As reported by Frank Keegan over at statebudgetsolutions.org, the current system has left many actuaries feeling frustrated as pension investment managers encouraged by politicians chase ever higher stock market returns in order to bring down stratospheric levels of unfunded liabilities.
At least one member of the panel added investment managers to the list of those who should be blamed for the current crisis. Gene Kalwarski, Cheiron CEO, said that though the defined benefit model of pensions is broken, "The investment community is making a lot of money on these defined benefit plans, and I don't think (the) incentive to change is there."
It was also Kalwarski who described the job of pension actuary today as the equivalent of being a mortician during a plague.
Perhaps the most sobering assessment came from Dallas Salisbury, president of the Employee Benefit Research Institute, who said that, "In the absence of radical change, those benefits cannot be paid; those promises cannot be kept."
Many of the stakeholders in this debate, including public sector union bosses, and some politicians and investment managers, still don't believe that.
At least one member of the panel added investment managers to the list of those who should be blamed for the current crisis. Gene Kalwarski, Cheiron CEO, said that though the defined benefit model of pensions is broken, "The investment community is making a lot of money on these defined benefit plans, and I don't think (the) incentive to change is there."
It was also Kalwarski who described the job of pension actuary today as the equivalent of being a mortician during a plague.
Perhaps the most sobering assessment came from Dallas Salisbury, president of the Employee Benefit Research Institute, who said that, "In the absence of radical change, those benefits cannot be paid; those promises cannot be kept."
Many of the stakeholders in this debate, including public sector union bosses, and some politicians and investment managers, still don't believe that.
Great work Steve. The government - at all levels - needs to get out of the government employee pension business completely and as soon as possible. There is no other solution.