CalPERS decides not to decrease the discount rate!

[Runner]

Originally Posted by Duffer

No problem with FAP, used it for many years and still do.

Big problem with granting a liability that you don't fund on time. That is just "illegally" borrowing money without asking first.

You did not answer my question, and I suspect you really don't know how to fairly charge for a spiked benefit. Or, it is possible that you are too invested in the current methods you use.

Back to CALPERS: what other institution would provide a 7.75% guaranteed income on an annuity purchase besides public pensions? A grade BBB junk bond?

The spiking should be reflected in the assumptions. The retirement gains and losses should even out over time. The fact that there was an experience loss on one individual upon retirement doesn't mean anything by itself.

Do you think the public sector doesn't do experience studies? Do you think the assumptions do not reflect the actuaries' best estimate?

Public entities can offer more annuity dollars at a lower price than an insurance company. That's why defined benefit plans are an efficient way to compensate public sector employees. Fewer tax dollars are used to compensate for the service. Everybody wins.

[SirVLCIV]

Originally Posted by Runner

Public entities can offer more annuity dollars at a lower price than an insurance company. That's why defined benefit plans are an efficient way to compensate public sector employees. Fewer tax dollars are used to compensate for the service. Everybody wins.

No such thing as a free lunch...

[mr coffee]

Originally Posted by Duffer

No problem with FAP, used it for many years and still do.

Big problem with granting a liability that you don't fund on time. That is just "illegally" borrowing money without asking first.

You did not answer my question, and I suspect you really don't know how to fairly charge for a spiked benefit. Or, it is possible that you are too invested in the current methods you use.

Back to CALPERS: what other institution would provide a 7.75% guaranteed income on an annuity purchase besides public pensions? A grade BBB junk bond?

Bernie Madoff did something like this for a few years....

[JMO]

Originally Posted by Runner

If you have a problem with final average pay plans, then why not just say so? Advocate for a transition to career average pay plans. Seems like that would solve a lot of problems. That might be off the topic of CalPERS's discount rate.

I was thinking along the same lines. The final year based benefit is a problem, but it's a question of benefit design rather than a problem with funding.

Originally Posted by HatCapitol

So what interest rate do you think they should be using? Most would agree that 6% is conservative, but you won't find many annuities sold at 6%.

Indeed. I haven't been Annuity Actuary for many years now, but this comment made me wonder - what's the PBGC interest rate these days?

[Lane Meyers]

Originally Posted by Runner

The only thing more frustrating that discussing public sector plans with a private sector pension actuary is discussing them with actuaries outside of pensions altogether.

Amen!

[SirVLCIV]

Originally Posted by Runner

If you have a problem with final average pay plans, then why not just say so? Advocate for a transition to career average pay plans. Seems like that would solve a lot of problems. That might be off the topic of CalPERS's discount rate.

From scanning a lot of val reports for public plans, I'm thinking the problem is less FAP plans (though I would prefer 5 year average to 3) than it is 'final pay' plans.

[Lane Meyers]

Originally Posted by SirVLCIV

From scanning a lot of val reports for public plans, I'm thinking the problem is less FAP plans (though I would prefer 5 year average to 3) than it is 'final pay' plans.

I don't know the exact numbers, but I would bet that the vast majority are FAP plans. I agree that any plan that uses solely the final year's pay, and allows for spiking, is begging for abuse.

[Runner]

Originally Posted by Lane Meyers

I don't know the exact numbers, but I would bet that the vast majority are FAP plans. I agree that any plan that uses solely the final year's pay, and allows for spiking, is begging for abuse.

I don't know the numbers either, but I have one client that uses the highest 36 months. On its face it sounds like the final 3 year average, but it is actually just what it says. The highest 36 (nonconsecutive) months of earnings over their career. Whenever they cash out some unused sick time, that month goes into the average. I mean, how many people in the private sector can even cash out unused sick time much less spike their pension with it? They even have one employer that pays every two weeks, so for those members the months with 3 paychecks wind up in the average.

The plans are set up to seem reasonable, but then they are tweaked over the years to allow more and more abuse. I work with these plans every day, and I will tell anyone who will listen what the problems are and what some solutions are. Believe me, nothing suits these people more than having actuaries argue among themselves about what the discount rate should be. Assumptions do not affect the cost of the plan. The cost of the plan is the benefits that are paid.

[WellThen]

Originally Posted by Runner

Believe me, nothing suits these people more than having actuaries argue among themselves about what the discount rate should be. Assumptions do not affect the cost of the plan. The cost of the plan is the benefits that are paid.

What about using rosy assumptions to make benefits seem affordable to taxpayers, therefore allowing politicians and unions an excuse to adopt them?

[SirVLCIV]

Originally Posted by WellThen

What about using rosy assumptions to make benefits seem affordable to taxpayers, therefore allowing politicians and unions an excuse to adopt them?

That. Also, allowing politicians to defer funding them year after year after year.