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  #131  
Old 08-15-2016, 06:40 PM
exactuary exactuary is offline
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IFYP "who would facilitate a frank discussion on the methods and means by which pensions could deliver on their future obligations."
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Originally Posted by Leonard Cohen
Everybody knows that the dice are loaded
Everybody rolls with their fingers crossed
Everybody knows the war is over
Everybody knows the good guys lost
Pension Finance Task Force tried with initial success (Vancouver 2003). When they turned their attention from corporate to public plans after 2007, the public plan actuaries rallied, ultimately stifling pension finance.
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  #132  
Old 08-15-2016, 06:42 PM
exactuary exactuary is offline
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Some of the vanquished did not go quietly: http://www.forbes.com/sites/pensionr.../#20be2f1a74e4
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  #133  
Old 08-16-2016, 07:16 AM
Wag, the Dog Wag, the Dog is offline
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There are now 11 comments at the end of the article. One focuses on the role of the "independent actuary"
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Originally Posted by Kris Hunt
Paul Angelo admitted in a meeting of the Contra Costa County Employees Retirement Association that I attended that his firm recommended rates based on hiring/firing ability of the client (in this case the retiredment association. In a March 4, 2013 Editorial in the Contra Costa Times (Dan Borenstein had to have written it since he was there.) The Editorial was titled “Lower Pension investment rate still not enough.

Here is the quote from the editorial:

“The pension system’s actuary, Paul Angelo, who works under contract, didn’t help matters. He recommended lowering the rate to 7.25, but repeatedly said the 7.50 percent would be acceptable—even though his calculations showed the rate should be lowered to 7.09 percent.

As he explained his methodology, it became clear that the rate should be even lower. But if his firm recommended even the 7.09 percent “that would be our last day here because that is a big drop.” The supposedly independent actuary was making his own political calculation.

So, he explained, he rounded his recommendation up to 7.25 percent, leaving some board members scratching their heads. As Trustee Debora Allen correctly pointed out, if Angelo wanted to round to an even quarter point, the recommendation should have been 7 percent.

Allen voted for the 7.25 percent rate, but wanted it lower. As she said, “We should start living in the real world and facing the reality we have before us.”
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  #134  
Old 08-17-2016, 01:47 AM
Jeremy Gold Jeremy Gold is offline
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Default Op-ed at Market Watch

http://www.marketwatch.com/story/why...ear-2016-08-16
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  #135  
Old 08-17-2016, 09:37 AM
KSBurke KSBurke is offline
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But Finance 101 says that liability discounting should be based on the riskiness of the liabilities, not on the riskiness of the assets.
You should have t-shirts with this on it and wear them to SOA meetings. I'd buy one.

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It also persuaded the Society of Actuaries, the other industry group, not to publish it.
You called them both industry groups, not professional organizations. That's going to bother some people more than being told they're wrong about how the liabilities are valued.
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  #136  
Old 08-17-2016, 10:52 AM
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But Finance 101 says that liability discounting should be based on the riskiness of the liabilities, not on the riskiness of the assets.
More than that, the discount rate for riskier assets should be higher, but the discount rate for riskier liabilities should be lower. (This issue is more significant in areas other than pensions, but I have seen it misunderstood.)
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  #137  
Old 08-17-2016, 01:28 PM
Helen Sass Helen Sass is offline
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More than that, the discount rate for riskier assets should be higher, but the discount rate for riskier liabilities should be lower. (This issue is more significant in areas other than pensions, but I have seen it misunderstood.)
I don't think that is quite correct.

We have expected rates of return on the assets going forward and discount rates for expected future benefit payments going backward.

Part of the debate only concerns the expected rates of return - whether or not it is appropriate to continue to assume the same long-term rates we have seen in the past over long periods of time.

The other part is to what extent we use the expected rates of return as a discount rate for the future expected benefit payments. The FE argument is that the payments (the liabilities) are more or less "certain" and have almost no risk of not being paid so they should be valued the same as you would value a future payment from a bond. Even if you actually invested some of the assets in equities or other risky investments, you should consider the expected return in excess of the risk-free rate to be offset by a risk premium the market would require.

The point Jeremy is making (I think) is that there are no riskier or less risky liabilities - they are all virtually guaranteed so we should always use a risk-free rate to discount them regardless of how the assets are invested.
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  #138  
Old 08-17-2016, 02:11 PM
nonlnear nonlnear is offline
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Th obvious (and possibly inevitable) solution is to make the liabilities riskier.
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  #139  
Old 08-17-2016, 03:11 PM
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Th obvious (and possibly inevitable) solution is to make the liabilities riskier.
Riskier for whom? The sponsor, or the plan participants?
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And def agree w/ JMO.
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This. And everything else JMO wrote.
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Yup, it is always someone else's fault.
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Depends upon the employer and the situation.
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Therapists should ask the right questions, not give the right answers.
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I feel like ERM is 90% buzzwords, and that the underlying agenda is to make sure at least one of your Corporate Officers is not dumb.
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  #140  
Old 08-17-2016, 04:03 PM
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I'm referring to the math in the quoted article about a $1,000 pension liability due in 20 years being $258 at 7% or $554 using 3%.

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Some of the vanquished did not go quietly: http://www.forbes.com/sites/pensionr.../#20be2f1a74e4
If you up the pension fund to $554 right now, at the 7% earned rate you have $1,018 by time 9. If you earn anything close to the expected rate, you'll be 100% covered in about half of the time.

The article didn't address the over funding or the opportunity cost of immediately funding the extra $554-$258.

This is probably myopic and way over simplified, but it seems like this whole thing isn't about the math, but the politics
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