“Actuarial assumptions based on misinformation are a recipe for disaster,”

What have we gotten instead? Government sector jobs have grown at a staggering rate all complete with pensions, health care and benefits rarely seen in private industry. We have gone so far off the edge with the size, scope and intrusions of our supposed government that many areas of the country have either filed bankruptcy or on the verge of doing so. And what do the public unions have to say about it? Sit down, shut up and pay, the government has more and more money hidden in secret accounts. Just one thing about that statement…. It is our hard earned tax dollars that are being squandered, wasted and simply corrupted.

In the private sector, pension funds are highly regulated, and actuarial numbers are less of an issue. But in government, actuaries and the consulting firms that employ them are starting to draw lawsuits in places like Alaska, San Diego, Milwaukee County, Wis., and Evanston, Ill.

Actuaries Scrutinized on Pensions - New York Times

By firing its actuarial consultant last week, the New York State Legislature shone a light on one of the public sector’s deepest secrets: All across the country, states and local governments are promising benefits to public workers on the basis of numbers that make little economic sense.

The numbers are off-base for a variety of reasons. Sometimes there is a glaring conflict of interest, as there was in Albany, where the consultant was being paid by the workers seeking richer benefits. More often, there is subtle pressure on the actuary to come up with projections that make the pension fund look good.

Most of all, public pension actuaries use old methods that have fallen far out of sync with the economic mainstream. That does not necessarily mean their figures are wrong, but it does make them vulnerable to distortion, misunderstanding and abuse.

“Financial burdens have been hidden” as a result, said Jeremy Gold, a New York actuary and economist who was one of the first to call attention to the gap between actuarial figures and economic reality. Many economists now agree with Mr. Gold, saying they believe actuaries are routinely underestimating the cost of providing governmental pensions by as much as a third.

The difference “is going to come out of services, and the services are for the working poor,” Mr. Gold said.

In the private sector, pension funds are highly regulated, and actuarial numbers are less of an issue. But in government, actuaries and the consulting firms that employ them are starting to draw lawsuits in places like Alaska, San Diego, Milwaukee County, Wis., and Evanston, Ill.

In Texas, the attorney general is calling for actuaries to be registered, so the state can keep them on a shorter leash. Federal regulators are also flexing their muscles, and the actuarial rules-making board is being pushed to change.

Two big problems are being laid on actuarial doorsteps: overly aggressive investing and overly rich benefits. Benefits can go off the scale because widely used actuarial methods tend to make them look inexpensive. And this tends to encourage aggressive investing, because the greater the risk in the portfolio, the less costly it can seem to provide the benefits.

“Actuarial assumptions based on misinformation are a recipe for disaster,” said the Texas attorney general, Greg Abbott.

After the Fort Worth pension fund was found to have a crushing $410 million deficit, Mr. Abbott sent his staff to dig through more than a decade’s worth of documents, to find out why. They found that in 1990, an actuary had calculated that the city could put less money into the pension fund and increase workers’ benefits simultaneously — without making a dent in the fund — if he assumed that the fund would earn 10.23 percent a year on its investments.

(Excerpt) Read more at nytimes.com …