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The Case for Marking Public Plan Liabilities to Market

Jeremy Gold and Gordon Latter

in The Future of Public Employee Retirement Systems

State and local US pension plans hold an estimated $3 trillion in assets, with market values regularly disclosed in plan financial statements. By contrast, public defined benefit pension liabilities ... More

State and local US pension plans hold an estimated $3 trillion in assets, with market values regularly disclosed in plan financial statements. By contrast, public defined benefit pension liabilities are routinely reported at actuarial values that may differ substantially from market values. The authors propose that a more accurate way to value plan liabilities measures the present value of accrued benefits discounted at market interest rates for fixed income investments that are (or are nearly) default-free. They illustrate the difference between these measures for a set of public sector pensions using publicly available information.Less

The Future of Public Employee Retirement Systems

Olivia S. Mitchell

in The Future of Public Employee Retirement Systems

Pension systems are a central component of the compensation package for workers in virtually every developed nation, and nowhere are they more important than for public sector employees. The growth ... More

Pension systems are a central component of the compensation package for workers in virtually every developed nation, and nowhere are they more important than for public sector employees. The growth of public pensions has spurred a hot debate of late, since some private sector employees envy their public sector counterparts the relatively generous benefits negotiated by strong unions that traditionally represent civil servants. Also some politicians had argued that pension and health-care benefits paid to police and firefighters, schoolteachers, and other civil servants have become too expensive for the public purse, especially when benefits have been cut in the private sector And the costs of maintaining public sector pension plans have come under the microscope of late, as municipalities, states, and other governmental units facing difficult financial times and volatile capital markets realize they must cut corners. This volume takes up these and other themes pertinent to the future of public employee retirement systems around the world.Less

Estimating State and Local Government Pension and Retiree Health Care Liabilities

Stephen T. McElhaney

in The Future of Public Employee Retirement Systems

Liabilities for pension and retiree health-care benefits provided by US state and local governments are causing concerns for taxpayers and for those holding government bonds. Many question whether ... More

Liabilities for pension and retiree health-care benefits provided by US state and local governments are causing concerns for taxpayers and for those holding government bonds. Many question whether the methodology used to calculate these liabilities is appropriate, since the private sector calculates retirement system liabilities using different methods and assumptions. This chapter reviews and critiques current actuarial and accounting standards under which governmental retiree liabilities are calculated and compares and contrasts these standards to those used by private sector employers.Less

Reforming the German Civil Servant Pension Plan

Raimond Maurer, Olivia S. Mitchell, and Ralph Rogalla

in The Future of Public Employee Retirement Systems

This chapter analyzes the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for civil servants in Germany, allowing for alternative portfolio mixes using a ... More

This chapter analyzes the risks and rewards of moving from an unfunded defined benefit pension system to a funded plan for civil servants in Germany, allowing for alternative portfolio mixes using a Monte Carlo framework and a Conditional Value at Risk metric. The authors identify an investment strategy for plan assets that will minimize worst-case pension costs; this turns out to be 22 percent in equities, 47 percent in bonds, and 31 percent in real estate. The authors show that moving toward a funded pension system for German civil servants can be beneficial to both taxpayers and civil servants.Less

Objectifying Demographic Identities

Philip Kreager

in Categories and Contexts: Anthropological and Historical Studies in Critical Demography

Over the course of the nineteenth and twentieth centuries, demographic models, measures, and categories have played an influential role in identifying the groups of which modern societies are ... More

Over the course of the nineteenth and twentieth centuries, demographic models, measures, and categories have played an influential role in identifying the groups of which modern societies are composed. By constituting the characteristics and problems of groups as objects of scientific inquiry and public intervention, demographic methods work to enfranchise (or disenfranchise) them for various purposes. As part of Europe's relations with colonial and post‐colonial states, demographic methods have helped shape a wide range of popular identities, as well as ordinary people's experience of basic vital processes. Understanding the impacts of demographic practice requires us to depart from the conventional view that population data and analysis merely represent social and biological phenomena. The impacts arise not only from eugenic and other biases that may shape demographic categories, but are integral to the actuarial matrix of what are usually considered purely formal modelling and quantitative methods. ‘Demographic nominalism’, i.e. the historical consequences of fixing the flow of vital and social events into discrete classificatory schemes and formal models, is examined in terms of three available historical approaches, and illustrated by instances drawn from the demography of Indian castes.Less

The Mirage of Private Unemployment Insurance

Nicholas Barr

in The Welfare State as Piggy Bank: Information, Risk, Uncertainty, and the Role of the State

Chapter 3 discusses unemployment insurance. Actuarial insurance faces a series of problems including adverse selection and – particularly – moral hazard. It is, therefore, not surprising that private ... More

Chapter 3 discusses unemployment insurance. Actuarial insurance faces a series of problems including adverse selection and – particularly – moral hazard. It is, therefore, not surprising that private insurance connected with unemployment – for example mortgage protection policies – is offered on only the most restrictive of conditions, and that no private policies offer cover remotely comparable to that of state schemes. The state, in contrast, can offer social insurance.Less

Risk Transfer in Public Pension Plans

Olivia S. Mitchell and Kent Smetters

in The Pension Challenge: Risk Transfers and Retirement Income Security

This chapter shows that existing pension actuarial methods transfer risk away from early generations towards later generations. This causes equal expected costs to appear as unequal risk-adjusted ... More

This chapter shows that existing pension actuarial methods transfer risk away from early generations towards later generations. This causes equal expected costs to appear as unequal risk-adjusted costs, whenever risky assets are included in defined benefit plans. This bias favours current taxpayers, plan participants, and politicians at the expense of future taxpayers.Less

The Virtues of Randomization

in Against Prediction: Profiling, Policing, and Punishing in an Actuarial Age

The critiques set forth in this book reflect problems with the actuarial approach more generally—not just with specific types of stereotyping or profiles. This chapter sketches the contours and ... More

The critiques set forth in this book reflect problems with the actuarial approach more generally—not just with specific types of stereotyping or profiles. This chapter sketches the contours and benefits of a more randomized universe of crime and punishment. Randomization is the only way to achieve a carceral population that reflects the offending population. Randomization in this context is a form of random sampling: random sampling on the highway, for instance, is the only way that the police would obtain an accurate reflection of the offending population. And random sampling is the central virtue behind randomization. What randomization achieves, in essence, is to neutralize the perverse effects of prediction, both in terms of the possible effects on overall crime and of the other social costs.Less

The Current State of the Science and the Law

Christopher Slobogin

in Proving the Unprovable: The Role of Law, Science, and Speculation in Adjudicating Culpability and Dangerousness

This chapter begins by describing the current state of prediction science, which is improving but is still almost as likely to produce inaccurate judgments as accurate ones. It also makes the crucial ... More

This chapter begins by describing the current state of prediction science, which is improving but is still almost as likely to produce inaccurate judgments as accurate ones. It also makes the crucial distinction between clinical prediction testimony and prediction testimony based on empirically derived probability estimates (which includes not only actuarial prediction testimony but might also encompass testimony based on what has come to be called “structured professional judgment”). The chapter then canvasses judicial decisions concerning the admissibility of prediction testimony, decisions that, despite the high error rates associated with predictions, are even more welcoming than the decisions dealing with expert opinions about culpability. Finally, it presents an evidentiary analysis of prediction testimony with an assessment of its materiality, a concept that raises particularly interesting issues in connection with prediction testimony based on group data and demographic information.Less

China: The Pension System

Nicholas Barr and Peter Diamond

in Reforming Pensions: Principles and Policy Choices

This chapter describes the pension system in China, including the basic pension and funded individual accounts. The chapter offers a brief discussion the pension system's antecedents, and assesses ... More

This chapter describes the pension system in China, including the basic pension and funded individual accounts. The chapter offers a brief discussion the pension system's antecedents, and assesses its strengths and weaknesses, including fragmentation, system deficits and problems with individual accounts.Less

Geographic Profiling: The Fast, Frugal, and Accurate Way

Brent Snook, Paul J. Taylor, and Craig Bennell

in Heuristics: The Foundations of Adaptive Behavior

The current chapter addresses the ongoing debate about whether individuals can perform as well as actuarial techniques when confronted with real world, consequential decisions. A single experiment ... More

The current chapter addresses the ongoing debate about whether individuals can perform as well as actuarial techniques when confronted with real world, consequential decisions. A single experiment tested the ability of participants (N = 215) and an actuarial technique to accurately predict the residential locations of serial offenders based on information about where their crimes were committed. Results indicated that participants introduced to a “circle” or “decay” heuristic showed a significant improvement in the accuracy of predictions, and that their post-training performance did not differ significantly from the predictions of one leading actuarial technique. Further analysis of individual performances indicated that approximately 50% of participants used appropriate heuristics that typically led to accurate predictions even before they received training, while nearly 75% improved their predictive accuracy once introduced to either of the two heuristics. Several possible explanations for participants' accurate performances are discussed and the practical implications for police investigations are highlighted.Less

Sexual Predators and the Constitution of Dangerous Individuals

Stefan Vogler

in Sorting Sexualities: Expertise and the Politics of Legal Classification

Chapter 8 shows that, in sex offender adjudications, risk is determined through a process of individualized assessment using tools that are universal, or understood to be anyway—actuarial tools, ... More

Chapter 8 shows that, in sex offender adjudications, risk is determined through a process of individualized assessment using tools that are universal, or understood to be anyway—actuarial tools, polygraphs, PPGs, mental health diagnoses, and psychological testing. In other words, the individual himself is seen as the source of risk. Structural or cultural factors are not considered, even though, for instance, more than 90% of sex offenders are men, suggesting a strong gender socialization component. Culture seems to be a factor only when it is other cultures, as in asylum decisions. These risk assessment practices are clearly in line with the more essentialist and individualized conceptualization of sexuality found in the sex offender legal complex. Although actuarial tools are presented as objective technologies that remove human judgement and bias from risk adjudications, I show that subjectivity continues to find its way into these decisions.Less

The Promise of Probability

Rachel Z. Friedman

in Probable Justice: Risk, Insurance, and the Welfare State

This chapter focuses on the account of probability that helped to justify the first proposals for social insurance. Exemplified by Thomas Bayes and Pierre-Simon Laplace, this account increasingly ... More

This chapter focuses on the account of probability that helped to justify the first proposals for social insurance. Exemplified by Thomas Bayes and Pierre-Simon Laplace, this account increasingly understood probabilities in statistical terms, as the properties of groups of individuals whose experience is predictable in the aggregate. At the same time, exponents continued to hold that probabilities are relevant to singular events and to maintain an individual, prudential rationale for insurance. As a result, they were able to present insurance a responsible personal choice while also touting its social benefits. The first part of the chapter focuses on the mathematical technique that most directly supported this effort, known as inverse probability. The second part examines the implications of this apparatus for thinking about insurance. The chapter concludes by considering how and why the theoretical quest to align personal prudence and liberty with a common good was ultimately unfulfilled. In part, this outcome stems from ambiguities in what is now known as actuarial fairness. While central to the justification for mutual insurance in the latter part of the eighteenth century and beyond, this idea has a number of difficulties, which thinkers of this period grappled with but were unable to resolve.Less

The Unisex Insurance Debate and the Triumph of Actuarial Fairness

Caley Horan

in Insurance Era: Risk, Governance, and the Privatization of Security in Postwar America

This chapter examines public debates over sex discrimination in insurance risk classification during the 1970s and early 1980s. Feminist activists during this period identified gender-based risk ... More

This chapter examines public debates over sex discrimination in insurance risk classification during the 1970s and early 1980s. Feminist activists during this period identified gender-based risk classification as an impediment to women’s economic advancement and sought federal legislation that would mandate unisex rating in all forms of private insurance coverage. The insurance industry responded to charges of sex discrimination with the full force of its powerful lobby, ultimately defeating feminist efforts to equalize insurance access, pricing, and coverage for women and men. To combat unisex insurance legislation, industry leaders developed and disseminated the notion of actuarial fairness, an ideological construct designed to compete with feminist demands for equality. Widespread public acceptance of the industry’s rhetoric during these debates signaled the triumph of market-based definitions of fairness over social commitments to equality in American political life.Less

The Restorative Gaze

Eric Stoddart

in Criminology and Public Theology: On Hope, Mercy and Restoration

This chapter examines the intersection of surveillance and restorative justice. It acknowledges the analysis of personal information integral to criminal justice processes and critiques practices of ... More

This chapter examines the intersection of surveillance and restorative justice. It acknowledges the analysis of personal information integral to criminal justice processes and critiques practices of actuarial justice. The chapter is also cognisant of the shaping effect upon all parties of cultures of surveillance in everyday life. The motif of ‘surveillance from the cross’ is deployed in order to foreground the importance of solidarity with those under unjust and discriminatory surveillance. By considering the sacramental potential of technologies, space is opened for a critical and positive theological evaluation of surveillance in relational contexts. The notion of relational information is therefore proposed to recognise the tension between relational knowledge and digital information. Practical steps towards greater recognition of surveillance in restorative justice are commended.Less

Characterizing Insurance

Rob Merkin and Jenny Steele

in Insurance and the Law of Obligations

Introduces the complexity of insurance and questions the dominance of an actuarial model. The actuarial model is associated with distributive, collectivising techniques, and these have also been ... More

Introduces the complexity of insurance and questions the dominance of an actuarial model. The actuarial model is associated with distributive, collectivising techniques, and these have also been connected with the growth of an ‘insurance state’. Insurance is identified in this model with ‘loss-spreading’ of a particular form. An alternative, relational model is identified, associating insurance with risk-transfer. The relational or risk transfer model is associated with private arrangements and does not perceive insurance to be a factor extrinsic to party relationships. Further exploring the relational model, the chapter identifies the persistence both of responsibility, and of uncertainty, as important components of insurance relationships, and raises the question of how the boundary between insurance, and other means of transferring risks, might be identified.Less

Below decks on the youth justice flagship: the politics of evaluation

Peter Squires and Lynda Measor

in The politics of evaluation: Participation and policy implementation

This chapter considers some of the dangers of national, centrally-driven evaluations, arguing that the main reason why evaluations cannot explain what works is their relative neglect of the ... More

This chapter considers some of the dangers of national, centrally-driven evaluations, arguing that the main reason why evaluations cannot explain what works is their relative neglect of the perspectives and experiences of the central actors. It focuses on the connection between ‘the new and quasi-scientific language of programme evaluation’ and the ‘actuarial-interventionist logic of contemporary youth justice’. It shows the ways in which evaluation becomes more a part of a process by which compliance with programme goals can be assured than a scientific attempt to assess the effectiveness of different strategies. It discusses how the Youth Justice Board and the Home Office were seeking clear evidence of the crime reduction that the youth offending flagship was intended to deliver.Less