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  #21  
Old 10-31-2014, 10:54 AM
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How about blaming some politicians who offered pie in the sky benefits? And then looked for ways to make somebody else pay for their "bread and circuses."
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  #22  
Old 10-31-2014, 11:29 AM
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MH, I strongly agreed with all of your earlier posts. I would like to modify your last post somewhat. First, I agree that newly accrued benefits must be funded in full as earned (at something like market rates of discount). Second, however, any existing unfunded is not solely the responsibility of current participants and trustees. It is the accumulated responsibility of employees (current and former), trustees, and taxpayers (current and past).

We can eliminate trustees despite any responsibility they may bear because their pockets are so shallow in comparison to typical unfunded liabilities.

How to divide the unfunded between current and future employees and taxpayers must be negotiable since the only theoretically right answer is to charge past employees and taxpayers. The faster that we make up for the shortfall (whether on the backs of taxpayers or employees), the more likely we are to capture those past employees and taxpayers who are still around.
I have a hard time understanding why any should fall on future taxpayers, but I suppose it ought to be negotiable. Perhaps subject to an actual vote on the ballot, not approval by a legislative body that created the mess to begin with.
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  #23  
Old 10-31-2014, 12:35 PM
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How about blaming some politicians who offered pie in the sky benefits? And then looked for ways to make somebody else pay for their "bread and circuses."
Luckily for many of the said politicians, they're long gone once the money runs out.

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  #24  
Old 11-05-2014, 10:57 AM
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Bravo to James T Palermo, CFA, not an actuary, for his comments. I especially liked his items #4 an #5.
(All the comments to the ASB are in pdf format, but they open pretty rapidly.)
http://actuarialstandardsboard.org/c...Comment_19.pdf
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  #25  
Old 11-05-2014, 01:58 PM
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6. The current definition of an “intended user” of an actuarial communication is “any person who the actuary identifies as able to rely on the actuarial findings” (ASOP No. 41, Actuarial Communications, section 2.7). - ASB
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First of all, it is imperative that we change the “who” to “whom” in ASOP 41. - Charles E. Chittenden
At the end of this article, the author points out that the who/whom distinction can get difficult. I agree with 'whom' in this case, in part due to the proximity of 'the actuary identifies', with the pronoun at issue serving as the object. Perhaps the definition was originally drafted as 'any person who is able to rely on the actuarial findings', and the sleuthing actuary was inserted to correspond to the word 'intended'.
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  #26  
Old 11-09-2014, 11:08 AM
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Why not? I thought we were a profession. What separates a profession from a skill set are standards and duties to protect the product's end user, including, in the case of public plans, the general public.

Shame on us.
I need to bump this. And I feel that I can post twice since SOA seems to have said it twice:
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Originally Posted by SOA
Public sector plans and private sector plans simply have different needs from the ASOPs, given the public misperception that the ASOPs are designed to provide a protection to the plan participants and the public (which they are not), and given that actuarial practice for public sector plans today differs significantly.
Emphasis added.
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  #27  
Old 11-09-2014, 07:24 PM
Jeremy Gold Jeremy Gold is offline
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The letter from the SOA has now been posted.
Link to SOA letter: http://www.actuarialstandardsboard.o...Comment_18.pdf
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Why not? I thought we were a profession. What separates a profession from a skill set are standards and duties to protect the product's end user, including, in the case of public plans, the general public.

Shame on us.
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That is a mind boggling idiotic statement by the SoA.
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I need to bump this. And I feel that I can post twice since SOA seems to have said it twice: Emphasis added.
On its face the quotes from the SOA comment letter to the ASB are appalling.

I think most actuaries carry around with them the understanding that we do have a protective role in regard to third parties who rely on us. The classic example from the FSA syllabus of my era was the duty that life actuaries had to protect potential policyholders from misleading calculations prepared by actuaries and presented by life insurance salesman.

Years later this was codified in precept 8 of our Code of Conduct:

Quote:
Originally Posted by Code of Conduct
Precept 8. An Actuary who performs Actuarial Services shall take reasonable steps to ensure that such services are not used to mislead other parties.

Annotation 8-1.

An Actuarial Communication prepared by an Actuary may be used by another party in a way that may influence the actions of a third party. The Actuary should recognize the risks of misquotation, misinterpretation, or other misuse of the Actuarial Communication and should therefore take reasonable steps to present the Actuarial Communication clearly and fairly and to include, as appropriate, limitations on the distribution and utilization of the Actuarial Communication.
I am willing to be persuaded that the SOA has misspoken in its use of the phrase "not written to protect the product's end user (e.g. public sector plan participants) or the general public." Perhaps the SOA meant that we are not expected to provide protection to the end users in the form of a warranty that actuarial calculations of pension contributions will be sufficient to meet all pension promises. Perhaps the SOA meant that although actuaries do have a duty to protect end users, ASOPs are not written to fulfill that duty (even though, perhaps, the SOA thinks they should).

Before I find excuses to justify the SOA letter and rescind my being appalled, let's explore what might be meant by "protection." All actuaries know, and most actuaries often recite, the caveat that IF our contribution recommendations are followed and IF our assumptions are met, THEN contributions plus investment returns thereon are EXPECTED to meet all benefit obligations. I think we do a good enough job of this that a thoughtful public should not be led to believe that we guaranty results (of course insurance companies employ actuaries and capital and may guaranty obligations they take on).

But we actuaries are not the insurance companies and we don't bring capital and we do not warranty results. What we do is provide information. That is almost all that we actually do in terms of an end product for our work. And that is well and good as long as we do it well. Good. We provide information to public pension plan trustees who in turn inform the governments that fund the plans and often also the plan participants and the public (taxpayers who fund the government). In this context, then, what might we mean by "protection?"

Using the classic example, we protect the end users when we make sure that our direct clients (trustees usually) do not use our work to mislead our indirect clients (those end users who rely on our work product). We are responsible for Precept 8 and for making sure that the insurance salemen and public pension trustees do not use our work product to mislead those who (indirectly) rely on us.

The SOA letter makes a distinction in re FASB:
Quote:
Originally Posted by SOA letter
ASOPS ... are not written to protect the product’s end user (e.g. public sector plan participants) or the general public. Contrast this with the role of Financial Accounting Standards, which do have a purpose to protect shareholders and bondholders.
Well that is pretty clear and appalling.

What kind of protection do accountants provide to shareholders and bondholders? And what do FASB statements do to fulfill that purpose? Just like us, accountants do not issue warranties to their end users. What they do is take steps to ensure that statements they prepare are not used to mislead their end users. In order to ensure that compliant accountants fulfill their duty to end users, their profession (via FASB) issues standards of practice.

I see no room for the SOA position that our protective duty is substantively different from that of the accountants and that the ASOPs, unlike FASB statements, do not have the purpose of protecting end users.

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If, btw, the SOA position is that the public has a misperception that we protect, or intend to protect, them in ways that we, per the SOA, deny, then it seems to me that the SOA has two compelling duties of its own (it must execute at least one):

1) The SOA should move heaven and earth to get the ASB to step up to our duty and to write ASOPs that do protect end users, or

2) At an absolute minimum, the SOA should move heaven and earth to alert the end users, participants and taxpaying funders, that they have a critical misperception (as the SOA letter says they do) that should be replaced by a new actuarial motto: caveat emptor.

I noted above that perhaps the SOA had misspoken, not written exactly what they meant in their letter to the ASB. That is still a possibility and if it is also a fact, then the SOA should immediately correct and clarify its position in regard to protecting end users.
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  #28  
Old 11-09-2014, 08:14 PM
Jeremy Gold Jeremy Gold is offline
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While I was composing the previous post, a friend sent me the following:

http://www.actuarialstandardsboard.org/aboutasb.asp

Quote:
Standards of practice also serve to further assure regulatory authorities that they can depend on the actuarial profession to act effectively in the public interest. Written standards of practice, coupled with written provisions for disciplining members, show that a profession governs itself and takes an active interest in protecting the public.
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  #29  
Old 11-09-2014, 08:34 PM
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It's a bit of a nit-pick (compared to the previous comments), but on page 4 (point 6) of the SOA letter, they claim that additional information "can be structured in a way to reduce cost and improve decision making." This is an incredible statement in two ways:

1. The order suggests that reducing the cost of actuarial information is more important than improving decision-making! Really? And should actuaries be apologizing for the cost of our work?
2. For nearly all public-sector pension plans, the cost of the plan's actuary is simply lost in the noise. It's not even a trivial expense, let alone a material one. Why SOA would stoop to mentioning the cost of actuarial data is beyond me -- and this flaw was identified before the letter went out.

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  #30  
Old 11-10-2014, 01:35 AM
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A generous interpretation of the SOA letter is that they are making the point that ASOP's are not regulation, nor do they have the force of government behind them. They are not "consumer protection" laws. Perhaps if they were, then an end-user could sue over the failure to comply with the recommended ("required" if they had force of law) contributions.

Unfortunately, the comparison to FASB doesn't fit well with this interpretation.

I agree with Jeremy that the SOA should "correct and clarify" that statement.
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