[FoRK] Chart of the Day...
Ken Ganshirt @ Yahoo
ken_ganshirt at yahoo.ca
Wed Jun 9 15:43:36 PDT 2010
--- On Wed, 6/9/10, J. Andrew Rogers <andrew at ceruleansystems.com> wrote:
> On Jun 8, 2010, at 8:57 PM, Ken Ganshirt @ Yahoo wrote:
> > The pension fund (defined-benefit) I'm part of is
> funded by both employee and employer contributions. Not some
> funny promises but actual monetary contributions by both
> parties. Actuaries figure out, using whatever voodoo
> computations they use, how much needs to be contributed in
> order for the fund to be self-sustaining until the last
> eligible member dies. That's how the total contributions are
> established in any year.
> So..."fully funded" is based on the idea that you know some
> fellows with "voodoo computation" models that can precisely
> predict the distant future using a bucket of rather thin
> assumptions. What could possibly go wrong?
> I would think that there would be some cognitive dissonance
> considering your oft-stated objection to "speculators" that
> engage in far less speculation than what you are proposing.
> In reality, most pension funds only stay nominally solvent
> via Ponzi schemes or augmentation with taxpayer dollars.
> This is not a surprising result, it requires some
> indefensible assumptions for the math to even have a prayer
> of working out in the vast majority of cases.
> It is plausible to have a defined-benefit plan that is not
> a scam, but it is so expensive to implement one that you
> rarely see it in the real world.
You're conflating two or three issues here.
First, the speculation. I assume you are referring to whatever investments the pension fund owns? If so, yes, I am uncomfortable that a portion of the fund's income depends on speculating in the stock market. Both because the stock market in its present-day casino form pisses me off in any case and because the fund invests in it as a normal means of generating income.
What are the alternatives? ... That's as much a question to me as to you.
But that's only a scam or ponzi scheme to the extent that the stock market itself is.
Second, the actuarial voodoo. I am much less uncomfortable with that. There are a host of things we need to manage requiring some sort of rational guesstimate of the future ... more specifically, how long people are likely to live. We rely on actuarial guesswork to help us out with that. If you have some alternative means of determining a best informed guess of what contributions are needed (e.g. for pension fund contributions, life insurance policy premiums, etc.) that is at least as useful what would that be?
Related to that, the actuary is not really doing a lot of prediction of the future. They are simply looking at an agglomeration of data about the mortality of a particular demographic (people similar to the people in the pension fund) and extrapolating it out based on some fairly conservative assumptions about the probable increase or decrease in that mortality rate. From that they inform the fund how much money will be needed to sustain the payouts up to the last person standing. It's important to note that they make no recommendations about how that money should be acquired.
Finally, the issue of scams and ponzi schemes. I've asked twice now why someone thinks pension plans in general are scans or ponzi schemes, with no response yet. I've described a defined-benefit pension plan that I don't believe to be either a ponzi scheme or a scam. If you can't or won't explain your claim in the general case, at least please explain why you think this example is either a scam on someone or a ponzi scheme. ?????
Related to that, I'm truly baffled why anyone would think a defined-contribution plan is a scam on anyone or a ponzi scheme, so long as the funds - real money - are placed in the hands of a third party to manage so they will actually be available to the plan participants when they claim them.
Any deviations from these two examples that could be sincerely described as scams or ponzi schemes or requiring some sort of tax-payer-funded bailout are either the result of dishonesty or incompetence or both. That's a condemnation of the *people* responsible for the dishonesty or incompetence, not a condemnation of pension plans.
Or am I missing something?? Please be a lot more specific.
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