In order to turn a town, city, state, or nation into Greece, you just need obscure terminology and plausible deniability.
The New York Time’s Dealbook blog has a great recent post: “Bad Math and a Coming Public Pension Crisis.”
The thing to remember when you read the post is that someone could have reported this five years ago or ten years ago. It could have been an above-the-fold headline instead of a blog post. It could have been a series of stories.
But no one at the Times wants to do that. They work for the people who plunder us and hope to get out of the game before it collapses. A story like this shows that the cracks in the foundation are now too obvious to be ignored.
When Jim Palermo was serving as a trustee of the village of La Grange, Ill., he noticed something peculiar about the local police officers and firefighters. They were not going to live as long as might be expected, at least according to pension tables.
After Mr. Palermo dug into the numbers, he found that the actuary — the person who advises pension plan trustees about how much money to set aside — was using a mortality table from 1971 that showed La Grange’s roughly 100 police officers and firefighters were expected to die, on average, before reaching 75, compared with 79 under a more recent table.
That seems like obvious fraud with a plan to be out of the system before someone realized it was broken and was held responsible for fixing it. By using the wrong tables, the government was given a false justification for not setting aside as much money.
Assuming shorter life spans reduces annual contributions and frees up money for other things, like bigger current paychecks. And if the plan bases pensions on pay, as those in most American cities do, shortening the workers’ life spans on paper could lead to both fatter paychecks now and bigger pensions in the future. In La Grange’s case, those four years meant tens or hundreds of thousands of dollars to each retiree.
Now actuaries are worried about getting blamed for the looming economic implosion that will soon set upon us. The odd thing is that these worried actuaries use language that seems to indicate they think members of their profession are being wrongly blamed and then flip to language that indicates they are guilty.
“Actuaries make a juicy target,” said Mary Pat Campbell, an actuary who responded to the board’s call for comments.
She expressed concern that elected officials were using actuaries to lend respectability to “questionable behavior” like funding pensions with borrowed money, picking risky investments and “enacting benefit improvements based on lowballed costs.”
Other commentators have focused on the opacity of actuaries’ calculations and reports to the boards of trustees that govern public pension plans.
Trustees need clear and honest projections and do not receive them, a former pension trustee from Kentucky, Christopher Tobe, wrote.
I don’t know if the trustees really wanted “clear and honest projections,” but it was obviously the actuaries job to provide them regardless.
Another commentator, Mark Glennon, told the board that actuaries were churning out reports that no one but other actuaries could understand, providing cover for elected officials who were letting problems spin out of control.
“Chicago represents the most glaring example,” wrote Mr. Glennon, the founder of an online news service, WirePoints, which covers the fiscal morass in Illinois. “An actuary could have looked only briefly at some of its pension reports from years ago and seen the calamity to come. Reporters, political leadership and most pension trustees could not. Those who could understand were able to remain silent.”
But reporters could have asked for assistance. They didn’t want to know.
Pensions are massively underfunded now all over the country.