"My God, man, what have you done?"
Do a Google search for the word actuary, and a litany of definitions is presented. Here is a definition from the U.S. Department of Labor, Bureau of Labor Statistics:
Actuaries analyze data to estimate the probability and likely cost to the company of an event such as death, sickness, injury, disability, or loss of property. Actuaries also address financial matters, such as how a company should invest resources to maximize return on investments, or how an individual should invest in order to attain a certain retirement income level. Using their expertise in evaluating various types of risk, actuaries help design insurance policies, pension plans, and other financial strategies in a manner which will help ensure that the plans are maintained on a sound financial basis.
Given this definition it should come as no surprise that public agencies and their pension plans also use actuaries to forecast pension costs and estimate necessary funding levels. In California actuaries are typically hired as consultants, usually very well paid, to do such work in order to help determine both the cost and the affordability of pension plans.
It is also probably no surprise that with the current reports of public sector retirement plan after retirement plan being underfunded that questions arise about the reliability of some actuary work.
The Fresno Bee newspaper reported on April 10 that one actuary is getting the blame by several counties for errors that have cost local government millions in California and Florida. The article names Ira Summer and the firm he owns, Public Pension Professionals as an actuary that has been successfully sued for faulty actuary work. In this case by the counties of Fresno and Kern here in California. The article also says that he has been accused of flawed work by the counties of San Mateo, Tulare and Imperial and in Florida. Fresno claimed damages of $99 million but settled for $ 250,000 when discovering Summer’s insurance had lapsed.
It is likely that right now a lot of public agencies are reviewing the past work of their hired actuaries. Where public agencies have established pension benefits based upon the analysis and forecast of an actuary that is later found to have been flawed, not only have the public policy makers relied upon that work, so have some government employees who have worked and retired under that benefit plan. It is probably impossible to un-ring the bell for those public employees and retirees, but changes can be implemented for those hired in the future. Increasingly there are cries for this kind of change and it would be wise for public sector labor unions to get aboard this train or get run over.
After the Actuaries analyze data to estimate the future outcome of a set of presumptions based on the then current standards, the government leaders change the standards.
California was getting a healthy income stream from taxing the high end pensions. Then the rules were changed.
Now many to most high end pensioners leave this high cost state and move to a low cost state, some even have no state income tax.
California needs an excise tax on pensions over 50-60 thousand a year to recover the lost income stream and the windfall pensioner get by moving out of the California tax system and still collecting a California pension.
That is an interesting thought, Cook. Out of state retirees get hit with a tax to make up for escaping the State income tax. Something to ponder.