Society of Actuaries 2009 Annual Meeting (Boston)

I'm leaving for Boston this morning; I'll be attending the Society of Actuaries Annual Meeting starting Monday. Below is a list of the concurrent sessions I plan to attend. If you see me, please come by and say hello.

Monday 26 October
Session 17: Why We Need to Transform Our View of Risk
Session 27: Impact of the Financial Crisis on Pensions and Investments
Session 38: Basic and Continuing Education Update

Tuesday 27 October
Session 43: Management & Personal Development Section Continental Breakfast
Session 59: Perspectives on the Financial Crisis and Enterprise Risk Management
Session 62: Using Corporate Bond Spot Yield Curves for Pension Discounting
Session 79: Market-Consistent Valuation of Pension Plans

Wednesday 28 October
Session 98: Education & Research Section Continental Breakfast
Session 111: Revised Qualification Standards and Continuing Professional Development (*)
Session 116: What's New in Employee Benefits Accounting Standards

(*) I will be one of the presenters at session 111; come hear about the new SOA CPD rules.

Modeling the Forward Surface of Mortality

http://longevity-risk.org/presentations/Workshop_Session6/6A_Daniel_Bauer.pdf

Plagiarist Doris Kearns Goodwin to speak at actuarial meeting

For all the gory details, you can go to:
http://authorskeptics.blogspot.com/2004/09/professor-doris-kearns-goodwin.html
Disgraceful!

Xerox to buy ACS for $6.4B

I wonder what this will mean for ACS's Buck Consultants actuarial consulting subsidiary.

Joint Announcement on Future Education Methods

The presidents of the CIA/CAS/SOA have issued a joint letter to share news of and request member feedback on a proposal for developing future education methods.

http://www.soa.org/files/pdf/fem-letter.pdf

http://www.soa.org/files/pdf/fem-faq.pdf

http://www.casact.org/admissions/FEM-Expanded-FAQs.pdf

I encourage anyone who cares about the actuarial profession to write the Society of Actuaries before the end of the comment period on September 10.

ETA 8/16: For the record, I am most strenuously opposed to handing ASAs to college graduates without external validation through the existing exam system. My letter to the board can be found at http://home.comcast.net/~cscg/OpenLetterBoard.pdf.

What is the Proper Role of a Consultant?

http://www.pensionriskmatters.com/2009/07/articles/pension-consultants/what-is-the-proper-role-of-an-investment-consultant/

So I'm studying for the PRM4 Exam

One of the case studies concerns WorldCom. When I finished reading it, I was left wondering if this was a WorldCom that operated in some other country with which I am not familiar. The case study is by Dennis Moberg of Santa Clara University and Edward Romar of University of Massachusetts at Boston (yes, I'm calling them out; willful blindness this blatant goes beyond the pale and needs to be exposed publicly). Here are some of the highlights...

WorldCom is just another case of failed corporate governance, accounting abuses, and outright greed. But none of these other companies had senior executives as colorful and likable as Bernie Ebbers.

No palace in a gated community, no stable of racehorses or multi-million dollar yacht to show for the telecommunications giant he created; only debts and red ink - results some consider inevitable given his unflagging enthusiasm and entrepreneurial flair.

Personally, Bernie is a hard guy not to like.

All this would be just another story of a successful growth strategy if it weren't for one significant business reality - mergers and acquisitions, especially large ones, present significant managerial challenges.

All this was put in jeopardy when, in 2000, the government refused to allow WorldCom's acquisition of Sprint.

I'm sorry. I'm really confused. According to wikipedia, the story of WorldCom and Bernie Ebbers includes the following facts, not one of which is mentioned in the PRM case study.

Beginning in 1999 and continuing through May 2002, the company used fraudulent accounting methods to mask its declining earnings by painting a false picture of financial growth and profitability to prop up the price of WorldCom’s stock.

It was estimated that the company's total assets had been inflated by around $11 billion.

Bernie Ebbers was found guilty of all charges and convicted of fraud, conspiracy and filing false documents with regulators.

Shame on PRMIA. This case study is a disgrace and should be pulled from their syllabus.

Public Pensions Cook the Books (Andrew Biggs, WSJ)

Here's a dilemma: You manage a public employee pension plan and your actuary tells you it is significantly underfunded. You don't want to raise contributions. Cutting benefits is out of the question. To be honest, you'd really rather not even admit there's a problem, lest taxpayers get upset.

What to do? For the administrators of two Montana pension plans, the answer is obvious: Get a new actuary. Or at least that's the essence of the managers' recent solicitations for actuarial services, which warn that actuaries who favor reporting the full market value of pension liabilities probably shouldn't bother applying.

Public employee pension plans are plagued by overgenerous benefits, chronic underfunding, and now trillion dollar stock-market losses. Based on their preferred accounting methods -- which discount future liabilities based on high but uncertain returns projected for investments -- these plans are underfunded nationally by around $310 billion.

The numbers are worse using market valuation methods (the methods private-sector plans must use), which discount benefit liabilities at lower interest rates to reflect the chance that the expected returns won't be realized. Using that method, University of Chicago economists Robert Novy-Marx and Joshua Rauh calculate that, even prior to the market collapse, public pensions were actually short by nearly $2 trillion. That's nearly $87,000 per plan participant. With employee benefits guaranteed by law and sometimes even by state constitutions, it's likely these gargantuan shortfalls will have to be borne by unsuspecting taxpayers.

Some public pension administrators have a strategy, though: Keep taxpayers unsuspecting. The Montana Public Employees' Retirement Board and the Montana Teachers' Retirement System declare in a recent solicitation for actuarial services that "If the Primary Actuary or the Actuarial Firm supports [market valuation] for public pension plans, their proposal may be disqualified from further consideration."

Towers Perrin and Watson Wyatt will merge

This will creat the world's largest employee-benefits consultancy, surpassing current leader Mercer.

Bang it goes again?

In the thunderous collapse of GM, one detail seems to have gone almost unnoticed. The old GM's US pension fund, with its near-$100bn of liabilities, is being transferred lock, stock and barrel to the new entity. As a direct result, the new GM could be bankrupt again in a very few years. GM's US fund is, of course, in deficit, but the company has made no contributions since 2003. Back then, it put in $18.5bn, which it raised through a bond issue. Since this counted as a pre-payment, GM is not obliged to pay any more for the next year or two. However, it will then have to start plugging the gap, under the new rules set down by the Pension Protection Act of 2006. This, Mr Ralfe calculates, would involve diverting $1bn to $2bn annually from operating cash flows. If GM cannot do that, bang it goes again. [Source: Financial Times]

Federal Regulation of Insurance?

At a hearing of the House Financial Services Subcommittee on Capital Markets, Insurance and Government Sponsored Enterprises, US lawmakers discussed what kind of role the federal government should have in regulating the insurance industry. "The events of the last year have demonstrated that insurance is an important part of our financial markets," said Rep. Paul E. Kanjorski, D-Pa., chairman of the subcommittee. "The federal government, therefore, should have a role in regulating the industry." [Source: InvestmentNews]

Social Security Trustees Report is Out

http://www.ssa.gov/OACT/TRSUM/index.html

Wells Fargo Freezes Pensions

From their most recent 10Q
https://www.wellsfargo.com/downloads/pdf/invest_relations/1Q0910Q.pdf

On April 28, 2009, the Board of Directors approved amendments to freeze the Wells Fargo
qualified and supplemental Cash Balance Plans and the Wachovia Pension Plan.

Pension Tsunami

Public pension plans around the country are entering an age of bankruptcies and broken promises. Some states realize they must make some hard choices. Some don't. When it all blows up blame will need to be laid which is what Milwaukee County [New Jersey] officials are doing this week as their lawsuit against their plan's actuary goes to trial. The trial will likely include actuarial arcana designed to confuse the jury to one side or the other but it really should come down to how much mute actuaries are to blame for the coming pension tsunami. Actuaries should be able to tell what a promised pension benefit would cost. But if they come up with too big of a number those benefits might not be provided which is bad for the government workers who won't get those benefits and bad for the government officials who will need to come up with some remuneration scheme that they won't be able to defer onto future taxpayers.

[Thanks to MPC for the link]

Potential PBGC problem: $13.5 billion GM liability

Pension & Investments:

A GM bankruptcy could become the PBGC's biggest nightmare because the automaker could dump as much as $13.5 billion in unfunded pension liabilities onto the PBGC — the largest ever from a single company — if GM were unable to fund its US defined benefit plans and terminated them. The claim would be almost twice as large as the current record of $7.5 billion from the 2005 termination of United Airlines pension plans.

NYT:

Decisions that the government will make soon on the future of GM and Chrysler could accelerate the decline of traditional pension plans. “If one of these companies solves its pension problem by shunting it off to the federal government, then for competitive reasons the others have to do the same thing,” said Zvi Bodie, a professor of finance at the Boston University School of Management and longtime observer of the government’s pension insurance system. “That is the death spiral.” For years, traditional pensions have been in a slow decline, with troubled sectors like aviation and steel shedding their plans in bankruptcy court as 401(k) plans have taken hold. But big sectors, particularly manufacturing and financial services, have clung to the old plans. The PBGC has roughly $67 billion in assets to cover the benefits of nearly 4,000 failed pension plans; GM has $84 billion just to cover promises to its own workers. For traditional pension plans, “maybe this is their last stand,” said Jeffrey Cohen, a partner with the law firm Ivins, Phillips & Barker in Washington who was chief counsel for the PBGC from 2005 to 2007. If the automakers’ plans fail, he added, “the biggest domino will have fallen for the PBGC.”

YRC aims to fund pensions with real estate

YRC Worldwide, the biggest trucking company in the US, is negotiating with its unions to allow it to suspend cash payments to its defined-benefit pension plan and to pledge real estate instead. It would be the first major US company to use its real estate to help meet its pension obligations.

I find this vaguely disturbing. Also, I'm surprised that no US source seems to be carrying this story.

Unprepared for retirement

Among workers without a defined benefit pension plan at work, 41 percent believe they have such a plan.

Mother Of All Bad ideas

In Florida, a plan recommended by the Citizens Property Insurance Corp. Mission Review Task Force would allow the state to borrow $2 billion from the state pension fund to back up the catastrophe fund in event of a hurricane.

What could possibly go wrong?

[Thanks to MPC for the link.]

FSA!

I became an FSA at 3:30 this afternoon. (The picture is from the conferment ceremony this evening.)

http://www.soa.org/files/pdf/edu-2009-03-fsa-names.pdf

Pension Relief For Companies With Strings

Corporations might get relief from stringent pension-law funding requirements — but with a big string attached that some experts see as a step toward a mandatory retirement system. Under a proposal now being considered by senior Democratic congressmen, companies with active plans would get a break from the 2006 Pension Protection Act's onerous new funding requirements, but only if they agree not to freeze their plans to new employees — perhaps for several years. Companies also would have to agree not to terminate their plans to get the funding relief. In addition, frozen plans would not qualify, even if those freezes apply only to new employees.