Sunday, September 07, 2008

Actuaries Strike Back

More public finance wonkery which I will not get into in detail.. but the WashPo has a must read article that pertains to lots of things around here. See:

Revisions Considered for Valuations of Public Pension Payouts

I personally would love to see actuaries duking it out. It would be a little like bloggers doing ultimate fighting. I suspect it's not as dramatic as the Post makes it out to be, no matter that the stakes really are measured in $Billions, if not $Trillions.

The article explains how the nations actuaries are debating whether pension liabilities should be calculated assuming a 4% or 8% rate of return on investments. 8% being common in the public sector, despite as the article points out it is "about twice the market-based rate that private firms are allowed to use under federal regulations". The alternative is to use 4% which some argue is more realistic and the standard in the private sector. What does the City of Pittsburgh use for its actuarial calculations? 8.75%. If you are going to be optimistic, why play it safe? So by pushing the boundary on even the optimistic assumption for investment return, that extra 0.75% has allowed the city to lower its required payment into the pension system by say $3-$4 million a year. If they had to use 4% as an assumption the increase in required payments into the pension system would be quite a bit more than that.

and I don't predict stocks.. but the Fannie and Freddie new is scary. Who knows how the market will react Monday. Thus far, the 2nd half of the year has not provided any reprieve from the losses the city pension fund took in the first half.


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