A question that usually answers itself

[American Psycho]

Anything new from the EA meeting this week?

[wonderer]

meeting attendance below 800 from a high of 1500

serious thought about the need for fundamentally changing the valuation structure to include some kind of side fund based on asset risks undertaken

serious thought whether the answer to the DB/DC question is --- neither

IRS, PBGC and Treasury were all particularly vague with detailed questions getting the "we don't have a specific answer" much more than in the past

Harlan Weller appears to be more willing to step into the Jim Holland position of old.

The PBGC wants to be a serious player in limiting the 30-Year Treasury replacement opportunities as well as wanting to seriously address general funding.

Much advice on work procedures necessary to limit opportunities for discovery portraying events differently than actual occurrence.

Some real IRS interest in dealing with the idiocy of amortizing a credit balance languishing around while fully funded and now rising to weigh down required contributions.

Some serious discussion about whether JCWAA expiration will lead to missed quarterlies because of a need to restate prior year results under pre-JCWAA conditions. (one of those probably absurd conclusions that only a true high monster would worry about.)

The benefits of quarterly contribution recharacterization were considered and received a positive push when it was implied that penalties would not be pursued as long as prior year minimum contributions were met without attendant recharacterization.

Back to the esoteric .... there was a broad push from Economists to have the government set a corridor of min/max contributions along a simple measure with complete freedom of contribution pattern in between.

The head of the Joint Board suggested the Joint Board may be moving from IRS to either the DOL or the PBGC ... I suspect it will be the PBGC because that seems to be the resting place of plans these days as a Tontine appears to be gathering steam ....

[American Psycho]

Why do you think attendance down? The enrollment cycle? War? Recession?

What did PBGC say that led you to say they want to play?

When you say tontine, are you suggesting dying out of all DB plans or dying out of some with winnings for survivors (a true tontine enriches survivors). Are you really describing the death of all?

What economists? What are pros and cons of simple system?

[wonderer]

The chief policy actuary for the PBGC delivered a pointed attack on ERIC's proposal in the 30-year treasury Rate debate. He went on to make comments about the huge expected increase in PBGC liabilities, while downplaying the role of asset losses suffered by PBGC investments, deflecting the issue to huge liabilities about to be picked up and further making a case for increasing risk based premiums. The tontine concept comes from the shrinking plan base and increasing liabilities which are presenting an enormous unmeasured risk to currently healthy plans in the form of facing huge premium increases.

Morgan Stanley made the case on changing funding rules in a session driven by Jeremy Gold, focussing on the inappropriateness of current funding rules which go more toward mandating cash flows from corporations than addressing the fundamental security of benefits (minimum funding) and limiting topside funding (tax policy). This would allow a corporation to determine its own funding policy, which in and of itself should be determined in light of the funding entity as a whole and not just in relation to the pension liability subset.

In my opinion, attendance is down beause of : a)further erosion of support by companies employing actuaries b)no recent significant legislation, including lack of cash balance guidance c)entrenchment of current plans in plan design terms and the erosion of the concept of increasing accrued benefits d)impact from the prior atmosphere of arrogance (this was most obvious in the dearth of audience participation) e)more exciting meeting opportunities f)increased delegation of the mundane tasks in valuations to computerized reports which have eroded the fundamental technical grasp that meetings of the past nutured


Have no doubt that the current policy environment is one of individual responsibility and the corporate pension plan concept is out of step with this policy and societal shift. I add societal because corporate plan sponsors are looking at the fluctuations in plan liabilities and the huge cash flow requirements and are wondering whether it is in their best personal interest to dump the plans in order to preserve bonus targets. Therefore to the extent paternalism remains viable in the competitive marketplace is the extent to which pension plans will survive. At the same time, the PBGC structure forces this paternalism to be generous enough to be willing to undertake the abandonment of plans by other corporations, including, perhaps, significant competitors within their own industry.

Interspersing items heard with personal interpretation:
Actuaries have been able to prolong the day of reckoning due to market performance, but the other edge of this sword is that actuaries have not had to develop the skills necessary to demand funding for these plans on an ongoing basis and have also shot themselves in the foot by sliding in plan changes which decrease benefit accumulation without much employee backlash, thus showing to plan sponsors that pension plans may not be as significant a tool for employee retention as one thought. Further, human resource consultants go out of their way to help companies deal with employee cost and set policies in a way to influence employee behavior accordingly. The basic mantra underlying all of this is a disintegration of the perceived need for long service employees under the guise of needing nimble, new technology, adaptable, project duration employees.

[exactuary]

The chief policy actuary for the PBGC delivered a pointed attack on ERIC's proposal in the 30-year treasury Rate debate. He went on to make comments about the huge expected increase in PBGC liabilities, while downplaying the role of asset losses suffered by PBGC investments, deflecting the issue to huge liabilities about to be picked up and further making a case for increasing risk based premiums.

The loss of PBGC assets may be irrelevant but the loss of assets in covered plans is the reason that the PBGC exposure has increased.


Morgan Stanley made the case on changing funding rules in a session driven by Jeremy Gold, focussing on the inappropriateness of current funding rules which go more toward mandating cash flows from corporations than addressing the fundamental security of benefits (minimum funding) and limiting topside funding (tax policy). This would allow a corporation to determine its own funding policy, which in and of itself should be determined in light of the funding entity as a whole and not just in relation to the pension liability subset.

How did the "fans" react to this?


I add societal because corporate plan sponsors are looking at the fluctuations in plan liabilities and the huge cash flow requirements and are wondering whether it is in their best personal interest to dump the plans in order to preserve bonus targets.

I understand that companies that last year refused to endorse shareholder proposals to remove pension earnings from bonuses are now clever enough to make the same proposals themselves.


Therefore to the extent paternalism remains viable in the competitive marketplace is the extent to which pension plans will survive.

Don't window plans and cash balance plans provide sponsors with some incentives whether or not they are paternalistic?


Interspersing items heard with personal interpretation:
Actuaries have been able to prolong the day of reckoning due to market performance, but the other edge of this sword is that actuaries have not had to develop the skills necessary to demand funding for these plans on an ongoing basis and have also shot themselves in the foot by sliding in plan changes which decrease benefit accumulation without much employee backlash, thus showing to plan sponsors that pension plans may not be as significant a tool for employee retention as one thought. Further, human resource consultants go out of their way to help companies deal with employee cost and set policies in a way to influence employee behavior accordingly. The basic mantra underlying all of this is a disintegration of the perceived need for long service employees under the guise of needing nimble, new technology, adaptable, project duration employees.

Same comment in re window plans. Also you seem to blame actuaries for foot shooting themselves. Don't some actuaries want to shoot the messengers, eg, Morgan Stranley?

[wonderer]

According to the logic, the lure of a window through a defined benefit plan which allows the cash flow spread of the incentive may be more apparent than real in that the attendant liability may trigger an AML event thus increasing debt covenant default risk.

There was a healthy round of applause from about a fourth of the group when the Morgan Stanley guy was told to back off from telling actuaries how to fund pension plans.

There was a healthy round of applause from about half the group when the rebuttal came stating that not understanding the implications of the legal risks being explored by a number of newly interested parties is tantamount to being caught on the wrong side of the argument.

[American Psycho]

The AAA says 1200 EA's attended:

http://www.actuary.org/

Where did you get the 800 figure?

Can you explain the applause (both ways) more clearly? What was applauded? The guy from Morgan Stanley IS an actuary, right?

[wonderer]

The 800 was the word of mouth number passed around. I am glad there were more. I do know the exhibition hall had about half the walls available being used for vendors.

The guy from MS is an actuary of long standing according to his statements.

It is my understanding that some actuaries feel the concept of funding pension plans is the domain of pension actuaries and that financial economics types are sticking their nose in only to get more control of assets.

It is also my understanding that other actuaries sense that the very magnitude of the assets and liabilities in question prudently demand input from as many sources as possible in the determination of funding policy and maybe even the proper way to measure liabilities.

We all know that FASB mandated our method and our key assumption when we did not step forward as a profession set up a way to bring comparability of pension plans out of the footnotes. We are silly if we do not understand that this power grab had the far reaching implication of minimizing the long term planning of these plans in favor of short term impact. The push toward immediate recognition of gains and losses is further evidence of this trend.

Most everybody agrees that the rules are extremely complex. Some like it that way and some do not.

[exactuary]

It is my understanding that some actuaries feel the concept of funding pension plans is the domain of pension
actuaries and that financial economics types are sticking their nose in only to get more control of assets.

Peskin of MS is still in asset business. Gold is not.

We all know that FASB mandated our method and our key assumption when we did not step forward as a profession
set up a way to bring comparability of pension plans out of the footnotes. We are silly if we do not understand that
this power grab had the far reaching implication of minimizing the long term planning of these plans in favor of short
term impact. The push toward immediate recognition of gains and losses is further evidence of this trend.

While FAS 87 weakened actuaries, the problem was not that actuaries knew how to account for pension plans and the accountants did not. The problem was that actuarial methods were designed to budget cash contributions and still are. The problems in FAS 87 are because the accountants did not go far enough. Immediate recognition of gains and losses is a step that should have been taken long ago. That is better accounting than deferral. I invest long term in mutual funds but I do not want them to account on any basis but market.

If actuaries want to regain leadership from the accountants, they need to learn financial economics faster than the accountants. This should be relatively easy. Pension actuaries who do know financial economics will be stonger tomorrow than those who do not and simply resist the interference. Co-opt the economists where they are right and be very careful to understand their perspective when you are most sure that they are wrong.