IF I BUY A LOTTERY TICKET and "assume" I will win a million dollars, but I don't, have I lost a million dollars?
In the bizarre version of English used by actuaries (and the federal government) the answer to that question is yes. In language used by everyday citizens the answer is obviously no.
In this upside down world, if something goes up exactly as assumed, it is treated as if it didn't go up at all because it did what was expected.
The most common example of this is the federal budget.
If the government expects next year's budget to be 5 percent higher than this year's, but it is only raised by 4 percent, public officials crow that there was a 1 percent cut in spending. There wasn't. There was a 4 percent increase.
The same is true of actuaries.
In the final version of the 2013 "Marin County Employee Retirement Association's Actuarial Valuation" the following sentence appears:
The funded ratio has declined from 84.0 percent in 2008 to 75.1 percent as of June 30, 2013, primarily as a result of the asset losses in 2008-2009.
A "normal" English speaker would infer from that sentence that MCERA's assets were lower in 2013 than in 2008. They weren't. The actuarial value of MCERA's assets in 2008 was $1.486 billion. In 2013, it was $1.620 billion, an increase of 9.1 percent.
(On a market value basis, the increase was far larger, 22.7 percent.)
How does the plan actuary claim that the "losses" from 2008 and 2009 were the cause of the decline in the plan's funded ratio when the assets are greater now than they were then? He does it by "assuming" that the plan should have earned 7.5 percent a year for those five years, for a total gain of 43.5 percent.
In the world of the actuary, the plan "lost" 34.4 percent.
It is as if your neighbor earned 9 percent on his portfolio, but because he expected to earn 44 percent he complains that he lost 35 percent.
You would laugh at him.
Actuaries do the same thing when talking about a plan's liabilities. They assume that the liabilities will go up by a certain amount every year. When that expectation is met, it is treated as a non-event. It's magic. They didn't really go up. "We expected it to happen so it had no impact."
Here are the real numbers. In 2008, MCERA's liabilities were $1.770 billion. On June 30, 2013, they were $2.157 billion, an increase of 22 percent. Yet the actuary attributes none of the decline in the funded ratio to the increase in liabilities.
I understand why actuaries do what they do. They live in an arcane world with its own language. It is useful to them in the performance of their jobs.
But when they publish documents used by the general public, they have an obligation to speak in terms that the average person can understand.
At CSPP's recent candidates' debate, Supervisors Judy Arnold and Susan Adams both blamed the current state of the county's pension plan on the stock market losses during the great recession. All of our supervisors and many other elected officials have made similar claims.
They are bunk. A far bigger influence was the unmentioned increase in liabilities.
Were they parroting "actuary-speak" because they don't know any better? Or do they know better and hide behind actuary-speak because they can?
This language confusion must stop. It is a big part of why there is such disagreement about the size and nature of the problem.
The MCERA board members, for whom I have great respect, usually do a difficult and thankless job well. In this instance they are not. It is in the board's power to make the documents on which the public relies more transparent and easier to understand.
They should do so immediately.
David Brown of Mill Valley has been active in local public pension reform efforts.