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Old 06-03-2010, 11:08 AM
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Dan Moore Dan Moore is offline
Join Date: Jan 2008
College: University of Dallas
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Default Critique of Josh Rauh's projected pension insolvency

NASRA has a rebuttal of Josh Rauh's analysis of when some public pension plans are projected to run out of money. But in my opinion, they missed the most obvious criticism: when Josh Rauh says 'run out of money', he means something different from what most people think 'run out of money' means.

To most people, 'running out of money' implies that you're broke, busted. Your assets are down to zero, bupkes, nada, nothing, etc.

Josh Rauh, however, is perhaps somewhat like Jerry's friend in one Seinfeld episode. She finds herself in a washroom stall adjoining one occupied by Elaine. Encountering an empty roll, Elaine asks her neighbor if she might spare at least a square. Jerry's friend replies "I haven't a square to spare." To her, being almost out of TP = being out of TP, with the question of how 'almost' is almost left to the viewer's imagination (IIRC).

Josh Rauh uses a methodology that matches future contributions with normal costs, and sets these aside, ignoring them thereafter, because the liability cancels out the asset. However, in reality, contributions go into the trust, whereas the liability associated with the normal cost is for a deferred payment. So, Rauh's projection of insolvency dates is clearly flawed.

Rauh explains his methodology in his paper. But that explanation is missing from other articles that merely summarize his projected insolvency dates.
The best time to plant an oak tree is twenty years ago. The second best time is right now.

Last edited by Dan Moore; 06-03-2010 at 04:29 PM.. Reason: Added link
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