Actuarial Outpost
 
Go Back   Actuarial Outpost > Actuarial Discussion Forum > Pension - Social Security
FlashChat Actuarial Discussion Preliminary Exams CAS/SOA Exams Cyberchat Around the World Suggestions


Reply
 
Thread Tools Search this Thread Display Modes
  #411  
Old 07-21-2011, 11:27 AM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,235
Default

Quote:
Originally Posted by tommie frazier View Post
73M in damages on a 3.71B fund? what was the magnitude of the error made then? bc the damages are <2% of the total-is that a big deal?
I bet Milliman thinks $73M is a big deal.
__________________
STUMP
Reply With Quote
  #412  
Old 07-21-2011, 11:59 AM
tommie frazier tommie frazier is offline
Member
 
Join Date: Aug 2003
Favorite beer: The kind with 2 e's
Posts: 23,733
Default

Quote:
Originally Posted by limabeanactuary View Post
I bet Milliman's captive insurer thinks $73M is a big deal.
ifyp

but ultimately they think it too through higher rates/contributions. although less than some other settlements that have come through.

that can't be the extent of the error then. an actuarial estimate within 2%-isn't that pretty good, or is our ability to estimate totals better than I had been made aware.
Reply With Quote
  #413  
Old 07-21-2011, 01:23 PM
Duffer's Avatar
Duffer Duffer is offline
Member
ASPPA COPA
 
Join Date: Feb 2007
Location: Teeing off
Studying for Blues guitar
Posts: 1,493
Default

Quote:
Originally Posted by tommie frazier View Post
ifyp

but ultimately they think it too through higher rates/contributions. although less than some other settlements that have come through.

that can't be the extent of the error then. an actuarial estimate within 2%-isn't that pretty good, or is our ability to estimate totals better than I had been made aware.
I am curious which actuarial firm advised the plaintiffs, and if they have any opinion on a 2% error.
__________________
*Humor Disclaimer: Funny or not, some of the above may be intended as humor. No offense is ever intended, but if offended please accept this disclaimer as a blanket apology. If you remain offended, you’re on your own. Ask your doctor if this humor is right for you. Common side effects include forehead slapping, eye rolling, knee pounding, and occasional gastric symptoms. No TARP funds were used for this disclaimer. If you can get cash for this clunker notify me immediately!
Reply With Quote
  #414  
Old 07-21-2011, 02:26 PM
tommie frazier tommie frazier is offline
Member
 
Join Date: Aug 2003
Favorite beer: The kind with 2 e's
Posts: 23,733
Default

good question. i haven't read anything about it. but for damages, there maybe were penalties issue for being below a min funding level, and the award is for those? bc, again, i find it hard to imagine that a jury could be convinced that there were real damages that couldn't be made up for reasonably within a reasonable range of actuarial estimate. or is the valuation calc completely devoid of judgment and so any discrepancy from the expected/required level triggers damages or a penalty?

I have no idea (obv, i don't work in that area)
Reply With Quote
  #415  
Old 07-21-2011, 02:28 PM
Kenny's Avatar
Kenny Kenny is offline
Member
Non-Actuary
 
Join Date: Jan 2003
Posts: 8,545
Default

Quote:
Originally Posted by Duffer View Post
I am curious which actuarial firm advised the plaintiffs, and if they have any opinion on a 2% error.
My interpretation of the article is that Milliman must pay $73M, not that there was an error of $73M.
__________________
Beat 24 people, win $24k
I am a scientist. I am sorry to disappoint you but I have never seen an elf or a troll. But who am I to exclude their existence? - Arni Bjoernsson
You are stupid and evil and do not know you are stupid and evil. ... Dumb students are educated stupid. - timecube.com
Usually while I'm reading, I'm actually thinking about...midgets riding toy horses - Roto


Reply With Quote
  #416  
Old 07-21-2011, 02:39 PM
Dan Moore's Avatar
Dan Moore Dan Moore is offline
Member
SOA AAA
 
Join Date: Jan 2008
College: University of Dallas
Posts: 2,966
Blog Entries: 1
Default

The $73 million is an estimate of how much higher the current assets would be if the error (presumably acknowledged by Milliman) had not been made. Presumably, the State would have contributed more if the error had not been made.

This presumption has a lot to do with the State's funding policy. Did they always contribute the amount recommended in the actuarial valuation? Or the ARC? Or some % of the ARC. Or, was the funding a constant % of payroll, adjusted from time to time.

Also, the State spent the money on something else (rather than contributing to the plan). Can Milliman argue that it's entitled to offset the $73 million by the current economic value of the $ spent on other specific projects?
__________________
The best time to plant an oak tree is twenty years ago. The second best time is right now.
Reply With Quote
  #417  
Old 07-21-2011, 10:10 PM
Jeremy Gold Jeremy Gold is offline
Member
SOA AAA
 
Join Date: Jul 2003
Location: New York City
College: Wharton PhD 2000
Posts: 448
Default

I testified on behalf of Milliman in this case.

http://www.msbca.state.md.us/decisio...n_decision.pdf

Although I will not discuss anything confidential, the facts and arguments are public record and I will answer questions here. I have already read (above) a number of guesses about what might have happened. Most of the guesses are far off the mark. The decision linked above will narrow your speculations and I will, if you are interested, help sort out the facts.

It almost goes without saying but, as a witness for Milliman, I believe strongly in Milliman's side of the case and I was disappointed with the decision.

BTW, I testified before the MSBCA (Maryland State Board of Contract Appeals) which is a regulatory tribunal consisting of three judges. The case went through at least two levels of appeal through the Maryland courts ending with the decision reported this week.

Last edited by Jeremy Gold; 07-22-2011 at 10:47 AM.. Reason: change 'with" to "which"
Reply With Quote
  #418  
Old 07-22-2011, 12:05 AM
Kenny's Avatar
Kenny Kenny is offline
Member
Non-Actuary
 
Join Date: Jan 2003
Posts: 8,545
Default

Quote:
Originally Posted by Jeremy Gold View Post
Most of the guesses are far off the mark.
You can't exactly blame us, all we had to go off was a poorly written "article" (if you can all it that) probably by someone who doesn't actually understand what they are writing about.
__________________
Beat 24 people, win $24k
I am a scientist. I am sorry to disappoint you but I have never seen an elf or a troll. But who am I to exclude their existence? - Arni Bjoernsson
You are stupid and evil and do not know you are stupid and evil. ... Dumb students are educated stupid. - timecube.com
Usually while I'm reading, I'm actually thinking about...midgets riding toy horses - Roto


Reply With Quote
  #419  
Old 07-22-2011, 12:19 AM
Kenny's Avatar
Kenny Kenny is offline
Member
Non-Actuary
 
Join Date: Jan 2003
Posts: 8,545
Default

Quote:
Originally Posted by Jeremy Gold View Post
I testified on behalf of Milliman in this case.

http://www.msbca.state.md.us/decisio...n_decision.pdf

Although I will not discuss anything confidential, the facts and arguments are public record and I will answer questions here. I have already read (above) a number of guesses about what might have happened. Most of the guesses are far off the mark. The decision linked above will narrow your speculations and I will, if you are interested, help sort out the facts.

It almost goes without saying but, as a witness for Milliman, I believe strongly in Milliman's side of the case and I was disappointed with the decision.

BTW, I testified before the MSBCA (Maryland State Board of Contract Appeals) with is a regulatory tribunal consisting of three judges. The case went through at least two levels of appeal through the Maryland courts ending with the decision reported this week.
I read the first 10-15 pages or so and skimmed another 10, but got bored pretty quickly and didn't feel like reading the 15 p decision. Can you give us a quick summary of the what the issue was?

Based on what I read i am guessing they valued the normal form as a life annuity when it should have been a 50% Joint & Contingent and the pension board was suing for lost investment income on the difference in recommended contributions, but to be honest, that is pure conjecture because all I really got was s history lesson on the pension plan and on Milliman.
__________________
Beat 24 people, win $24k
I am a scientist. I am sorry to disappoint you but I have never seen an elf or a troll. But who am I to exclude their existence? - Arni Bjoernsson
You are stupid and evil and do not know you are stupid and evil. ... Dumb students are educated stupid. - timecube.com
Usually while I'm reading, I'm actually thinking about...midgets riding toy horses - Roto


Reply With Quote
  #420  
Old 07-22-2011, 07:07 AM
limabeanactuary's Avatar
limabeanactuary limabeanactuary is offline
Mary Pat Campbell
 
Join Date: Jan 2010
Studying for Anglo-Saxon
Favorite beer: Bass Ale
Posts: 14,235
Default

The decision starts on page 50, btw....but the interesting stuff starts on page 53.

Quote:
On the one hand, respondent’s chief expert, Mowery, examined
Milliman’s work and rendered a thorough, thoughtful, and
definitive conclusion that Milliman violated the applicable
standards of professional care when its actuarial methodology
misinterpreted the meaning of the codes on the MSRPS retirement
tapes and thereby underestimated correct liabilities, a mistake
which was replicated for 22 years. On the other hand, appellant
produced a litany of competent expert witnesses, some of whom had
first hand knowledge of the facts at the time of the original
commission of the error that is the subject of this appeal.

Naturally, the experts offered by Milliman reach the opposite
conclusions as Mowery’s post hoc critique of Milliman’s job
performance. In pointing out the disparity in number of
supporting witnesses, one of Milliman’s witnesses testified that
because so many actuaries supported Milliman’s defense in
comparison to Mowery’s lone opinion to the contrary, this Board
should be compelled to find for appellant. However, simply
outnumbering experts is surely not the best manner of rendering
an intelligent evaluation of the worth of their opinions. It may
be fairly said that all actuaries have a stake in the outcome of
the instant proceeding, which poses the possibility of a variety
of significant future challenges to the profession, both
foreseeable as well as unanticipated in present light.
I would start reading there. You can go to previous pages if you are interested in the specific fact pattern.

I found this interesting:
Quote:
Even more directly instructive to the Board’s understanding
of actuarial responsibility in connection with the instant
dispute is the obligation set forth in ASOP No. 4. This ASOP was
not written and adopted until after 1982 but, though it was then
unwritten, expert testimony substantiated the uncontested view
that the duties set forth therein were nevertheless binding in
spirit and practice upon all of the actuarial work done by
Milliman for MSRPS. The express statement of that responsibility
as formally established in 1993 in §5.2.2 of ASOP No. 4 is simple
and straightforward: “All provisions of the plan adopted and
effective on or before the start of the plan year should be taken
into account in measuring pension obligations.” Between 1982 and
2005 Milliman failed to take into account in measuring MSRPS
pension obligations the correct payment provisions of three (3)
of the plans for which they were hired to perform actuarial
calculations, not including the legislative retirement plan.
Whether viewed by hindsight or foresight, this constitutes a
plain violation of ASOP No. 4. As MSRPS representatives
testified, understanding and fully taking into account in its
actuarial calculations the correct pension plan provisions is
what the actuary is hired to do. Failing correctly to account
for the form and duration of retirement payments represents a
fundamental flaw in actuarial analysis. Unless excused, failure
accurately to include the correct payment provisions of a pension
plan constitutes professional negligence for which the actuary
may be justifiably found in breach of contractual obligation and
professional duty.
Retroactive application of an ASOP.... niiiiice.

And when it got to this, all of a sudden I started remembering things:
Quote:
Here, in 1982 as Milliman undertook its first calculations
for MSRPS it relied for critical work components upon the efforts
of one of its employees, Moeller, an actuarial student at that
time who was not yet a Fellow of the Society of Actuaries and had
limited prior experience. It is not contested that Moeller, in
accordance with applicable ASOPs, contacted the appropriate MSRPS
representative, King, as she attempted to decipher MSRPS codes
identifying forms of payment and their location on MSRPS data
tapes. Miraculously and to the credit of both Moeller and
Milliman, Moeller left a written memorialization of one of those
telephone conversations when she noted, “0 = SLA.”

Though she cannot now recall that particular telephone
conversation in 1982
, ....
Ya think? I was in 2nd grade back in 1982. I can't remember much from then myself.

later on:
Quote:
Much was made in the testimony of experts on each side of
this contest concerning Milliman’s obligation to review its
initial calculations in 1982 with those made by the predecessor
actuary, Buck, the year prior, and whether the discrepancies
thereby noted should have alerted Milliman to its error from the
outset. The duty to compare one year’s calculations against the
prior year’s calculations is expressly suggested in the sentence
of §5.2.3(a) of ASOP No. 4 immediately prior to the provision of
that section just discussed. As applied to the instant case,
specifically with respect to the information provided by MSRPS to
its actuary, ASOP No. 4 requires that Milliman “should verify its
reasonableness, both directly and against other available
information, such as prior year’s data and reported benefit
payments.” However, the Board finds that this aspect of the
actuarial obligations contained in ASOP No. 4 should be fairly
and reasonably relaxed under the circumstances that existed here
in 1982. That is because when Milliman undertook its first
actuarial evaluation for MSRPS, both Milliman and MSRPS
understood that Buck’s calculations were flawed. Therefore, to
expect or require that Milliman’s anticipated correct evaluation
of MSRPS liabilities match up against Buck’s incorrect
calculations would have been folly. That Klug calculated 15.897
as the average annuity factor for Buck’s 1981 valuation of the
police retirement system, while Milliman calculated a factor of
11.817 for the following year, is not sufficient in and of itself
to fault Milliman for not catching its coding error.
Well, that's a nice touch of reasonableness.

Jeremy makes his appearance at the bottom of here:
Quote:
Some degree of mystery does remain with respect to
Milliman’s apparent recognition that the number of retired police
increased between 1981 and 1982 from 288 to 339 or 341, a jump of
about 20%, while strangely, Milliman’s calculation of liability
decreased slightly from Buck’s tabulation even though it was well
understood at that time that Buck’s calculations were
undervaluations, not overvaluations of MSRPS liability. Why did
Milliman simply accept without closer examination its
determination of decreased liability for this plan, when
Milliman’s calculations gave rise to dramatic increases from
Buck’s determination of liability for other plans? One would
have expected the opposite result, namely, that Milliman would
have to increase Buck’s valuation of police retirement
liabilities and that the increase for this particular group
should have been especially sharp due to the sudden increase in
the pool of retirees between 1981 to 1982. But somehow this
discrepancy failed to raise any concerns that might have been
evident at that time from a closer examination of the disparate
average annuity factors. Even one of Milliman’s own expert
actuarial witnesses, Gold, testified that he would have probed
further faced with such a discrepancy. While this Board does not
conclude that Milliman’s failure to act as Gold would have acted
rises to a level constituting a negligent violation of the
applicable standard of care per se, Milliman’s failure to
undertake any additional investigation in this regard is
nonetheless indicative of a cumulative climate of missed
opportunities which permitted Milliman to correct its error had
red flags been adequately addressed rather than ignored.
Okay, you guys can read the rest. (I haven't finished reading it myself... but I gotta go to work)
__________________
STUMP
Reply With Quote
Reply

Thread Tools Search this Thread
Search this Thread:

Advanced Search
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off


All times are GMT -4. The time now is 05:01 AM.


Powered by vBulletin®
Copyright ©2000 - 2020, Jelsoft Enterprises Ltd.
*PLEASE NOTE: Posts are not checked for accuracy, and do not
represent the views of the Actuarial Outpost or its sponsors.
Page generated in 0.90652 seconds with 10 queries