Mercer’s Little Alaska Problem?

Leo Kolivakis's picture

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Leo Kolivakis's picture

What really worries me is that companies and public pensions might be understating their true liabilities, using high discount rates or unrealistic assumptions on lifespan or whatever. One friend of mine who works at a major bank told me that the figures they calculated on Canadian corporations were shocking, and he said "it's far worse in the US". But he said that they cannot publish these figures because they fear losing corporate clients and making enemies. A month or so ago, I reported about a UK firm that said private pension liabilities are understated to the tune of billions of pounds. Can you imagine the deflationary headwinds that will develop if aggregate pension liabilities are truly massively understated? This will make Japan's lost decade(s?) look like a walk in the park.

Budd Fox's picture

In my country, I am one of the fiercest and outspoken enemy of Mercer. They "helped" the country superannuation fund to set the strategic asset allocation, and being the rigid stolid actuaries they are, they prevented anyone from inserting any revision/timing mechanism for the bear markets. A friend of mine, an advocate of algorithmic timing (long term, nothing HF..) even resigned from the Fund supervisory board for their obstructionism, backed up by the Chairman of that board.

Of course, this caused a disaster in 2008 and harsh moves from the Govt, in the fund's funding program.

Well, recently, the fund concocted a PR campaign based on the market rebound and murky percentage results ( as they remained, of course, staunchly stuck in that SAA on the way down, but on the way up as well..) to save the ass of the management team. Then the supervisory board commissioned a study to judge their who??

Yes you are Mercer!!!!!

I wrote news articles on that, blowing the whistle , and they went undercover...never tried to reply ( i know why...I have clear documental evidence of their stupid mistakes..) but, of course, that put in light the incestuous , conflicted, cronyism ridden relationship these clowns had with the supervisory board boss....playing with the country's retirement plans.

If these clowns go under...i will not only dance on their graves..I'll gleefully pee on them!

Miles Kendig's picture

One more primary example of how private & public pension management is getting moved from an outlying industry closer to the center of finance.  Too much flow that needs to support the squid.  Combined with the regulatory changes of the last 15 years and events like the AON & WWW involvement in the UK pension situation (advised by the squid) the process of demonization, self inflicted as it may well be, is well on its way.

primus's picture

Alaska has a $7.5 billion unfunded liablitity, perhaps more thanks, in part, to the swindlers at Mercer.

'Around 1998, Mercer Human Resource Consulting provided new actuarial figures to the state, in response, some observers have suggested, to political pressure from a Legislature looking for funds. The result: Lawmakers cut the PERS contribution rate from 11.5 percent to 6.5 percent. The savings were spent on other government operational costs at the state and local levels.

About two years ago, Mercer reevaluated their assumptions, Holt said. Suddenly, the rosy scenario offered in the late 1990s was looking like skunkweed.'


Anonymous's picture

Hopefully after the 2010 elections and the investigations get underway. We'll see an avalanche of this kind corruption and fraud drug out into the light of day. This administration and it's merry band of fascists don't have a clue what's fixing to hit them.

Obnoxio's picture

The States are broke so I think they may start to sue\tax everyone.

I guess Mercer failed to predict the future accurately enough. Any damages should be based on the fee $2.5 million. I still think we may see some towns in the future with no employees but only retirees taking all the revenues.

mberry8870's picture


The from the AP today and exactly to your point:

Associated Press

PITTSBURGH--Pittsburgh officials shelved an idea for a first-of-its-kind tax on college tuition after two universities and a nonprofit health insurer agreed Monday to make large contributions to the city.

Mayor Luke Ravenstahl said he hoped the contributions from the University of Pittsburgh, Carnegie Mellon University or Highmark Inc. would serve as a catalyst to get other nonprofits to help the city financially.

Mr. Ravenstahl had called for the 1% tuition tax on the city's 65,000 college students as a way of getting money to help pay for some $15 million a year for the city's pension obligations. Nonprofits are exempt from most taxes, but represent many of Pittsburgh's major employers and hold about one-third of the city's property value.

Neither the mayor nor the three institutions would disclose how much they would give, but Mr. Ravenstahl said he was optimistic the money would help resolve the city's long-standing financial problems.

"This is a leap of faith for all of us. The future of our city and our citizens is riding on it,'' he said.

Nonprofits have given money to the city in the past under an entity called the Pittsburgh Public Service Fund, but the amounts given have been far below what Mr. Ravenstahl said was needed.

Mr. Ravenstahl said the new agreement represented a large contribution, but did not offer specifics. Other nonprofits would be welcome to contribute, and the city was in talks with other groups, he said.

University of Pittsburgh Chancellor Mark Nordenberg said the city was "trapped in a fiscal structure that might have been appropriate in the first half of the 20th century'' but no longer made sense.

He and the mayor said state lawmakers must allow Pittsburgh to find a new way of collecting revenue, noting that municipalities across the state face pension-obligation problems.

The tuition tax drew instant and widespread criticism from students and the city's universities, but it appeared to have enough support in council to pass.

Several other college towns have toyed with the idea of a tuition tax--most recently Providence, R.I.--but have set it aside as politically risky and reached similar voluntary payment arrangements with institutions.


I will not steal from you if you agree to a donation?

saladbarbeef's picture

This is exactly the same as what happened to Milwaukee County (Wisc.) early this decade  Mercer jammed the taxpayers (giving the tax-gorged bureaucrats whatever answer was needed)  and then claimed, "Who me?" when sued. 



Anonymouse's picture

Great article, Leo.  Thanks.  Especially after we disagreed so vehemently on your other recent article.

It sounds to me as if $2.5B is a bit excessive as the state did not lose that much as a result.

Even so, this does show the value of transparency, not just in portfolio composition and trades, but in owning up to an error.

We learned in my business long ago that it is much better to admit a mistake and correct it, quickly and completely.  We did worry about the damage to our reputation.  But what we found out is that we gained more reputational value as honest than we lost from the few mistakes that were made (and there always are some).

Our investors learned they could trust our reporting as well as our marketing story as we earned a reputation as honest managers. When a problem did arise, the investors would feel confident we were telling them the whole story so they could get their hands around the issue without worry of other bombs being dropped.

Too bad others haven't learned that lesson.

curbyourrisk's picture MMC a short here????

exportbank's picture

Mistakes happen but it takes a man to stand up straight and admit it. The problem of course is that there are very, very few real men left. 

Leo - keep the spotlight on pensions - more money has been stolen and wasted by pension plans than by any other group charged with the well being of the citizen. This musical chair chase for the magical "four times inflation" return has to stop. 

Anonymous's picture

" actuarial firms are finding it impossible to buy liability insurance against such claims."
No problem there. Lucrative market for GS to delve into. They can buy part of AIG and get into the insurance business since they have the full faith of the fed behind them.

phaesed's picture

Yes, let's continue to de-regulate.

I mean, it would be HORRIBLE to reduce those insurance company profits.

Anonymous's picture

Sideshow, but fun to watch from the other side of the world. How come you monkeys in the northern hemishere trust any of these highly trained baboons. I wouldn't give Mercers the steam off my shit for an opinion.