With any luck you'll die soon: Part 1, Not dying on schedule

By: David A. Smith1

Tell me, he said, how soon will they shoot me?

The longer a retiree lives, the more he or she should save for retirement, so if you d like to save less today, plan on dying sooner tomorrow?

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

I m not scared of dying?

Principal sources used in this post

The Wall Street Journal (2 June 2015; brick red font)2

New York Times (8 July 2015)3

New York Times (July 10, 2015; forest green font)4

Even better is to talk someone else into funding your retirement, as long as you want to live, based on that person s belief you ll die soon, even if you know you intend to live longer. The moral hazard risks of this have dawned on even the New York Times (8 July 2015):5

Bad Math and a Coming Public Pension Crisis

By Mary Williams Walsh6

Busted US governmental entities appear to be Ms. Williams Walsh s beat: she s written regularly on Puerto Rico, Illinois, and pension issues.

When Jim Palermo was serving as a trustee of the village of La Grange, Ill., he noticed something peculiar about the local police officers and firefighters. According to pension tables, they were not going to live as long as might be expected,7

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Why would the police and firemen be projected to die so rapidly?

Mr.

Palermo has stumbled into the land of pension-fund doublethink.

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

And I ll never grow up, either

Doublethink depends on horizons beyond which one is allowed not to think and where the sun never shines.

Important sources relevant to public-employee pension funds

California s self-tying knots (February 27, 2012; 5 parts)89

San Bernardino Innumeracy precedes insolvency; December 4, 2012; 4 parts)1011

Detroit The fall of the Roamin Empire (September 25, 2013; 5 parts)1213

Stock-taking (October 15, 2014; 2 parts)1415

Detroit A fleeting miracle? (December 31, 2014; 2 parts)1617

Detroit Doublethink pension funding (January 5, 2015; 10 parts)1819

In re City of Stockton (pdf, also available in text here), issued February 5, 20152021

Stockton revitalization Folly or catalyst? (May 13, 2015; 3 parts)2223

2425

For the doublethinker, the horizon is information. Any doublethinking will be encoded in jargon comprehensible to other dialect-speakers but unintelligible to outsiders that under no circumstances may be translated into plain speech.

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

So far, so good

For the beneficiary, the horizon is temporal, the unpredictable (and therefore unquantifiable) future. If no catastrophe is certain within the temporal horizon, why worry about anything beyond that?

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Nothing to worry about, as long as you feed me

For both groups, all future catastrophes are implicitly equivalent, so one might as well choose whatever works best, right here, right now.

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

I m Walter Blunt right here, right now26

That mentality prevails until those who have to pay run out of money, or until they wake up to the imminence of inability to pay.

After Mr. Palermo dug into the numbers 27

Mr. Palermo s no yokel; he s a director and securities analyst with Chicago Equity Partners, which is a multi-asset class investment platform with approximately $10 billion in assets under management. 2829

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Advising on $10 billion of other people s money; now advising on his own

he found that the actuary the person who advises pension plan trustees about how much money to set aside was using a mortality table from 1971 that showed La Grange s roughly 100 police officers and firefighters were expected to die, on average, before reaching 75, compared with 79 under a more recent table.

How would you feel if, after you d taken out your loan, the bank wrote you saying it had decided to extend the loan s maturity four more years, and you d be making the same payments, just 48 more of them?

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Four more years?

As we saw when exploring France s en viager housing arrangement, annuities are the temporal mirror image of mortgages:30

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Turn a mortgage inside out and it s an annuity

Like a mortgage in reverse, the longer the annuity runs, the more you need up front.

When actuaries calculate the numbers for a pension plan, mortality rates are a powerful hidden factor.

If an actuary predicts the workers will live to an old age, it means they will be drawing their pensions for more years. That, in turn, means the employer should set aside more money up front, to keep from running out later.

For public-employee retirees, the annuity s term is the same as the en viager resident s the rest of your natural-born life.

Assuming shorter life spans reduces annual contributions and frees up money for other things, like bigger current paychecks.

Shenanigans like Detroit s gratuitous thirteenth-month bonuses, San Bernardino s benefits boosting, or anything to do with CalPERS.313233

And if the plan bases pensions on pay, as those in most American cities do

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Not trusting her readers to know what a defined benefit plan is, Ms. Walsh chooses to skip over that after the emergence of ERISA (which doesn t apply to public entities), private employers all shifted to defined-contribution (like everyone s 401k), while the public employee unions clung to their defined-benefit plans almost as if they knew they were getting something better than they should.34

shortening the workers life spans on paper could lead to both fatter paychecks now and bigger pensions in the future.

Pay me now and pay me later what s not to like? Especially when it wasn t the employees risk, it was the taxpayers and the taxpayers didn t know they were taking this risk.3536

In La Grange s case, those four years meant tens or hundreds of thousands of dollars to each retiree.

To each retiree means from the taxpayers.

But if more workers are retiring and not dying on schedule

Retire earlier, live longer; isn t that what they re encouraged to do?

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

it can be a recipe for financial disaster.

Who could have been so dumb as to let the village agree to this?

The recommendations made by pension actuaries, like which mortality table to use, are largely hidden from public view, but each decision ripples across decades and can have an outsize effect.

As we saw in California, CalPERS made very sure that the public employee unions who were its economic bosses would be able to choose the actuaries, and that no one could remove them thus guaranteeing that they could overload the pension system at will. 3738

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

You can t remove us

On Thursday, a panel of senior actuaries will consider whether to update, or elaborate on, the existing actuarial standards for public pensions.39

Belatedly, the numerate have groggily awakened to the many-hundred-billion-dollar fleecing they have allowed to happen to them.

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

Oh, my god, what did I sign last night?

The pension-fund madrigal

A fraud for many voices

To be sung slowly, with rising triumphalism

Actuary We defrauded you on the cost of making promises.

Fund manager We defrauded you on your ability to pay for future promises.

Public employee unions Based on our frauds, you made the promises.

Accountants Then you caught on to our fraud]

Public employee union lawyers Too bad you can t rescind your promises.

All Ha ha. Ha ha!

With Any Luck You'll Die Soon: Part 1, Not Dying On Schedule

And ha ha ha!

And ho ho ho!

You re doomed and damned

And now you know

40.]

References

  1. ^ David A.

    Smith (www.affordablehousinginstitute.org)

  2. ^ The Wall Street Journal (2 June 2015 (www.wsj.com)
  3. ^ New York Times (8 July 2015) (mobile.nytimes.com)
  4. ^ New York Times (July 10, 2015 (www.nytimes.com)
  5. ^ New York Times (8 July 2015): (mobile.nytimes.com)
  6. ^ Mary Williams Walsh (topics.nytimes.com)
  7. ^ Jim Palermo (www.chicagotribune.com)
  8. ^ California s self-tying knots (February 27, 2012 (affordablehousinginstitute.org)
  9. ^ 5 parts (affordablehousinginstitute.org)
  10. ^ San Bernardino Innumeracy precedes insolvency; December 4, 2012; (affordablehousinginstitute.org)
  11. ^ 4 parts (affordablehousinginstitute.org)
  12. ^ Detroit The fall of the Roamin Empire (September 25, 2013 (affordablehousinginstitute.org)
  13. ^ 5 parts (affordablehousinginstitute.org)
  14. ^ Stock-taking (October 15, 2014 (affordablehousinginstitute.org)
  15. ^ 2 parts (affordablehousinginstitute.org)
  16. ^ Detroit A fleeting miracle? (December 31, 2014 (affordablehousinginstitute.org)
  17. ^ 2 parts (affordablehousinginstitute.org)
  18. ^ Detroit Doublethink pension funding (January 5, 2015 (affordablehousinginstitute.org)
  19. ^ 10 parts (affordablehousinginstitute.org)
  20. ^ In re City of Stockton (www.caeb.uscourts.gov)
  21. ^ available in text here (www.leagle.com)
  22. ^ Stockton revitalization Folly or catalyst? (May 13, 2015; (affordablehousinginstitute.org)
  23. ^ 3 parts (affordablehousinginstitute.org)
  24. ^ [Stockton: The curse of the gray PERL (June 9, 2015 (affordablehousinginstitute.org)
  25. ^ 9 parts (affordablehousinginstitute.org)
  26. ^ right here, right now (the-back-row.com)
  27. ^ Mr.

    Palermo dug into the numbers (www.forestparkreview.com)

  28. ^ a director and securities analyst (everythinglagrange.typepad.com)
  29. ^ Chicago Equity Partners (www.chicagoequity.com)
  30. ^ annuities are the temporal mirror image of mortgages (affordablehousinginstitute.org)
  31. ^ Detroit s gratuitous thirteenth-month bonuses (affordablehousinginstitute.org)
  32. ^ San Bernardino s benefits boosting (affordablehousinginstitute.org)
  33. ^ anything to do with CalPERS (affordablehousinginstitute.org)
  34. ^ defined benefit plan (affordablehousinginstitute.org)
  35. ^ it was the taxpayers (affordablehousinginstitute.org)
  36. ^ the taxpayers didn t know (affordablehousinginstitute.org)
  37. ^ CalPERS made very sure that (affordablehousinginstitute.org)
  38. ^ that no one could remove them (affordablehousinginstitute.org)
  39. ^ a panel of senior actuaries will consider (www.actuarialstandardsboard.org)
  40. ^ Part 2 (affordablehousinginstitute.org)

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