Actuarial Assumptions and Problem Pensions

Maybe, rather than three, there are actually four kinds of lies: lies, damn lies, statistics, and actuarial assumptions relied upon for public pensions. A little harsh, perhaps, but that is certainly what this article in the New York Times today suggests. Less flippantly and more substantively, the article’s discussion of underlying actuarial problems with public pension plans and the corresponding un- or underfunded nature of their liabilities points out in bas-relief something that is often lost when discussions turn to the transformation of retirement funding from a defined benefit world of pensions to the defined contribution world that we currently live in, namely that, although concerns about defined contribution plans as the centerpiece for retirement funding are both numerous and legitimate, defined benefit retirement plans come with their own problems as well. The major difference, though, is that most of those problems in the defined benefit context stay with the provider of the pension, i.e. the prior employer, while most problems with defined contribution plans fall on the pocketbooks of plan participants.