Questions

["Andrew C Lang" <andylang@erols.com>]

You apparently didnt read my former mails on this subject.

I am a pension actuary with around 40 years experience and have
worked for two of the largest employers of consulting actuaroies
in the world.

I am adamately opposed to converting SS into a DC plan. They simply
have none of the characteristics that are needed for Social Security.

<Your comment titled questions and puzzles raises several provocative
questions and implies that there are no valid answers and that the
questions have been swept under the rug. You assert that an important
government report on some of these questions was improperly squelched.
Such an accusation without any proof is highly improper. >

I have several thousand articles on this subject, and believe I
have seen it twice now---both from ex-Social Security actuaries
including, I think the former Chief Actuary, A. Haeworth
Roberston---author of The Big Lie and a number of other books highly
critical of Social Security.

If I run across them I will send you a copy.

<Pay-as-you-go financing is not feasible for private employers
because there is no assurance that the private employer will be
present when the promised retirement benefits become due, whereas
the government will always have the power to tax.>

You make it sound like employers are just dying to go Paygo. They
arent---a few public plans have tried it---and some have become
bankrupt too---or simply drop their pension plan altogether. Both
are possible whenever you do something as awful as trying to operate
a defined pension system by bypassing the rules which have been
carefully developed, sometimes by trial and error, over nearly a
century.

The government may have the power to tax all right, but that power
is limited. Yo ucannot maintain something as dumb as PayGo forever
without serious consequences.

 <A second reason for the pay-as-you-approach for Social Security
was to avoid placing control of an immense pension fund invested
in private securities under the control of the government.>

True--but you cant run a pension system that is worth anything
either without serious investing.

See my posts today.

<2. The annual 75 years projections contained in the annual report
of the Social Security is the equivalent for pay-as-you-go plans
of the annual valuation reports required for private pension plans.
Any competent pension actuary involved in private pension consulting
will confirm this.>

Lasr time I checked I was a competent pension consulting actuary
and I strongly disagree.

The 75 year forecasts used by SSA not the equivalent at all---and
are never used in that manner. For one thing we always discount
future projected benefits and spread out costs so that the
contributions together with existing assets and anticipated investment
earnings exactly pay for all benefits. This is not how these
forecasts work at all. The so-called 'actuarial balance' was a
contrived way of dealing with an accountin gsystem that does not
properly deal with pension costs and a funding method---payGo that
is the direct result of that flawed accounting.

We are not allowed to use open group forecasts for the required
legal minimum funding contributions. Even if we wanted to do
them--they would always supplement the standard acturaial valauation
report---never as a stand alone report.

They can and are extremely deceiving---even to experienced pension
actuarial consultants. This accounts in part at least why few
pension consulting actuaries ever want to get involved with the
debates on Social Security.

We have, unfortunately, the blind leading the blind on this enormous
issue---and all influenced a lot by perfidious attempts to privatize
the system---an idea which if ever realized would devastate this
country in ways unforseen even by its proponents.

<3. Proposals for personal account schemes to replace the present
Social Security plan are really not serious unless they include a
well-planned approach for amortizing the six trillion dollar accrued
liability of OASDI.>

I agree even more than you realize.

Where did you get the 6 trillion dollar figure?

I have never been able to pin this number down or check for the
assumptions used---and I have looked a lot.

The best I have been able to get is between 4-14 trillion---and
often the assumptions needed even for a ballpark estimate, like
the interest assumption or the way accrued beenfits are calculated,
or even if it was calculated using current partciapnts only  is
missing.

It's a helluva sad thing to be in this industry for 40 years, and
be pretty astute in investing in all manner of things, not to be
able to find from my own government the most basic of all reports
on the most significant social and financial program we have ever
had.

No wonder more actuaries do not speak out on this subject. Just
trying to explain the terminolgy used by our officials often is
exactly the opposite or at least very different from that used in
the pension industry makes me angry. This includes terms like
funding, advance funding, overfunding, surplus, pension surplus.

Even the word, 'entitlements' has an evil meaning, instead of the
normal legal meaning it has in the private sector. If I am entitled
to a pension benefit in the private sector---that means if you take
it from me, I can sue you. Try that with Social Security.

Before you can even talk on this subject in any depth at all---you
have to stop them ever few seconds to either correct them or try
and get inside their heads to understand where they are coming
from.

Not a pretty sight inside there.

But that is what I do  and have been doing for quite sometime now.

Education and when necessary, humor, satire, humiliation, and then
marshalling the only thing they seem to understand well---votes--is
what I do.

And I will continue to do that in many forums until everyone knows
that you cannot violate forever basic actuarial and financial rules
develped for pensions in the crucible of  experience over a century
because they work and others do not,  without paying a great price.

Check out my Ferrari metaphor.