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  #231  
Old 09-20-2016, 07:21 PM
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Originally Posted by exactuary View Post
By which you mean ... ?
Everyone must be an actuary. To hell with the exam process because random folks know better on how to calculate pension liabilities.

DISCLAIMER: I am a health actuary by trade and have some exposure to post-retirement benefit valuations. I am by no means an expert.

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Originally Posted by campbell View Post
Unfortunately for non-pension actuaries, once the profession's credibility is trashed, it will be for all of us. People won't make the distinction that "oh, it's just pension actuaries who signed onto stuff that hid how expensive these promises were"
This, so much this.
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  #232  
Old 09-21-2016, 12:07 PM
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Very early in my career, we were given a task to cost out a 20 and out disability benefit for a building trade multi-employer taft-hartley plan, so we undertook the assignment using normal disability experience tables, gave the cost, and it was adopted.
In the year following, we found out that 20% of the 20 year members already had a qualifying disability, and they retired. This points to the same type of problem faced by CalPERS and others, that you don't guard against the worst cast scenario because you don't/can't take the time to investigate the possibility of the extreme tail of the probability curve, and you make promises you just can't keep.
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  #233  
Old 09-21-2016, 12:35 PM
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Okay, I'm going to have fun with this:

here are some of the comments:
http://www.nakedcapitalism.com/2016/...rmination.html


Quote:
David
September 18, 2016 at 8:35 pm
Thanks. I know the Illinois 100 billion dollar liability is based on everyone retring today so I too wondered what they were up to.I also dont think Illinois has counted in the benefit of teir 2 which is terrible in paying off teir one. I think its all aimed ar destroying public service and the Times fell for it.
Yeah, I've been seeing that lie being used more and more often.

http://stump.marypat.org/article/443...al-proportions

Quote:
In no actuarial method that I know of do we assume that everybody is going to retire tomorrow in setting the value of that liability. There is a set of assumptions, one of which is the distribution of ages at which people will retire.

Now, those assumptions can be wrong, but nobody uses the “everybody retires tomorrow” assumption unless something really bizarre is happening.

It’s not quite the same, but it would be equivalent to “everybody dies tomorrow” assumption for an actuary valuing life insurance reserves or “everybody is in a car accident tomorrow” for an actuary setting personal auto reserves. It’s absurd… and would make the funded ratio look much, much worse.

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CPCD Manager
September 19, 2016 at 5:41 pm
Dear Susan Webber,

I am the “rube” who didn’t do their homework. According to your post I am also “clueless”. In response I will refrain from making ad hominem attacks and references to animal fecal matter.

First I would like to point at that the MISCELLANEOUS PLAN OF THE CITRUS PEST CONTROL DISTRICT #2 OF RIVERSIDE COUNTY is useless as there is about a two year lag in the information. I’ve included a link to an article on us from May so you can become more acquainted with our situation. Please note that CalPERS estimated that we would owe $90,000 to terminate.

Your blog post also did not address that it took CalPERS 4 months to calculate our termination valuation from the date of our exit, and then added $11,000 worth of interest, calculated at 7.5%, before we even received the bill.

For the sake of clarity, our plan did not have six employees. At the time we had one employee with 5 retirees receiving benefits from CalPERS. If you believe that it was unwise to switch to a 401K benefit plan because of the fees associated, then I would encourage you to contact the City of La Quinta to confirm that they owe CalPERS ~$6 million to stay in CalPERS.

Lastly, I hope you can take time to reflect on how hard people work to put food on the table rather than insult them.

Thank you.

http://www.desertsun.com/story/news/...lion/81666626/


Yves responds to that quote here:
http://www.nakedcapitalism.com/2016/...omment-2672379

Quote:
Larkeyloo
September 20, 2016 at 1:10 am
Bottom line is that when an employer leaves, CalPERS has to come up with enough money to stuff in a mattress to guarantee *all* future liabilities for that employer are covered. No future contributions and no room to risk trying to get 7.5% return.

Who else but the employer should come up with it? Certainly doesn’t make sense to take it out of funds contributed by other employers(taxpayers) to cover their employees. I agree that in this case, CalPERS is handling it correctly.
Maybe they should be doing this all along instead of assuming later generations will be making up for current optimistic assumptions.

I don't have an issue with the exit value. I have an issue with the "going concern" value.
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  #234  
Old 09-21-2016, 01:26 PM
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Quote:
Originally Posted by campbell View Post
Okay, I'm going to have fun with this:

here are some of the comments:
http://www.nakedcapitalism.com/2016/...rmination.html




Yeah, I've been seeing that lie being used more and more often.

http://stump.marypat.org/article/443...al-proportions



back to comments




Yves responds to that quote here:
http://www.nakedcapitalism.com/2016/...omment-2672379



Maybe they should be doing this all along instead of assuming later generations will be making up for current optimistic assumptions.

I don't have an issue with the exit value. I have an issue with the "going concern" value.
The bolded seems to be an issue ignored in many sectors right now.
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  #235  
Old 09-21-2016, 01:55 PM
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It appears that the group-think of many public plans is that only the budget matters, and that attempts to strengthen funding will result in diversion of funds from more political expenditures. They are not responsible for the safety of the resulting benefits, so an on-going concern is all they have to worry about.
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  #236  
Old 09-21-2016, 02:50 PM
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Originally Posted by StillCrazed View Post
It appears that the group-think of many public plans is that only the budget matters, and that attempts to strengthen funding will result in diversion of funds from more political expenditures. They are not responsible for the safety of the resulting benefits, so an on-going concern is all they have to worry about.
Yes. I'm saying that valuation is way too low.

That's all.
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  #237  
Old 09-21-2016, 03:35 PM
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I like the fact that the August paper has separate sections for economic principles (1) and financial economics principles (2). The former are completely non-controversial, while the latter are based on a very controversial, untested hypothesis.

The first subsection of ‘Financial Economics Principles’ (p. 7) states the crux of this hypothesis:
“If two or more seemingly different financial instruments or strategies produce the same cash flows in all states of nature, they will have identical present values.”

I am in the process of conducting research that I believe will show that the value that market participants place on pension liabilities (of non-frozen pension plans) of publicly traded companies is about 23% less than the ASC 715 (i.e., GAAP accounting) value (which, in turn is less than the paper calls ‘Market Liability’ – i.e., discounted at a risk-free rate). I expect to have a draft of my paper completed by 2016 year-end.

In support, the paper notes that if the cash flows pertain to two different traded instruments (i.e., securities), then the Law of One Price is enforced by arbitrage. However, if one of the instruments (e.g., a pension liability) is not traded, then the purported law is not enforced (and does not hold).

Another argument made is in the first paragraph after the Introduction on page 3:
“Public pension plans represent but a small fraction of the world’s total financial activities.”

The unstated implication is that people should just accept that non-traded liabilities such as pension liabilities should be valued the same way as securities, which have a much greater volume.

This argument strikes me as a fallacy that might be called the ‘Very Small Fraction’ fallacy. An illustration of this can be made with swans. It’s well-known that the vast majority of swans are white. A tiny fraction of them, however, are black. Employing the Very Small Fraction fallacy, we conclude that all swans are white (including the black ones).
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  #238  
Old 09-21-2016, 03:59 PM
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I am interested in Dan Moore's assertion about the 23% discount that market participants make against ASC 715 values. That will require more evidence, IMO.
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  #239  
Old 09-21-2016, 04:28 PM
Dr T Non-Fan Dr T Non-Fan is offline
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Interesting idea: put the Pension Plan on the open market, see how much it would cost for a state/city/county/company/etc. to rid itself of the obligations.
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  #240  
Old 09-21-2016, 09:00 PM
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Quote:
Originally Posted by campbell View Post
Maybe they should be doing this all along instead of assuming later generations will be making up for current optimistic assumptions.

I don't have an issue with the exit value. I have an issue with the "going concern" value.
Perfect!
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