January 17, 2000

Re: Social Security's cooked 'deficit' and the failure of the American Academy of Actuaries

I am pleased to enclose two reprints from The Christian Science Monitor: "Cooking Social Security's 'deficit'" and "Save Social Security? It's already solvent."

It is now apparent that the Social Security trustees fabricated the projected 75 year deficit - currently minus 2.07%. As I point out in the Jan. 4 Opinion article, the trustees had the motivation, the means, and the opportunity.

This will explain how Social Security's actuaries came to violate two of the American Academy of Actuaries' professional practice standards, namely, (1) the actuaries' disregard of substantial past experience and use, instead, of overly pessimistic economic scenarios when making financial projections over the next 75 years, and (2) their failure to reveal the influence of the trustees over their work. They would, of course, have to commit these violations in order to provide actuarial support for the otherwise unjustifiable deficit level chosen by the trustees. (Three of the trustees, by the way, are cabinet members, and a fourth is the Commissioner of Social Security).

A third violation involved the use of inconsistent assumptions when comparing the benefits arising from privatization proposals to those from Social Security. These comparisons favored privatization, and this may also have stemmed from what the actuaries perceived was expected of them.

Therefore, it is longer useful for the Academy to appoint a blue ribbon panel to review the violations. The Academy acknowledged and called for an end to the use of inconsistent assumptions last August, while the other two violations are self-evident. The Academy is in a political "hot seat" and has given every sign of looking the other way. It preferred consigning the matter to a minor committee clearly never intended to deal with so political a matter affecting over 200 million workers and beneficiaries and most employers, and so the Academy lost a fine opportunity to take a stand on behalf of a prouder actuarial profession, as it was founded to do.

One would hope that the Academy, having given its enthusiastic blessing to the work of the Social Security actuaries, would call for new projections to correct the erroneous ones that the actuaries prepared for the 1994-1996 Social Security Advisory Council, based on inconsistent assumptions, which enabled 7 of the 13 members to opt for privatization. The Congressmen and senators, who received projections based on their own proposals, also need to be advised to have such projections rerun, so they can correct any misleading information they may have given their constituencies about the virtues of privatization. Given the inertia of the Academy to date, however, it is not likely to do these appropriate things.

The Academy's focus should now be on ways to protect the integrity of the actuarial profession. It will not sit well with the public to know that confidence can no longer be had in the work of Social Security's actuaries. The Academy has a confidence problem, too, since it shied away from dealing with the violations, which I have been calling to its attention since January 1999.

Members of the Academy are now justified in wondering where the Academy fits into their professional lived, given such a significant lapse. Its most definitive action, incidentally, has been to ban my writings from its publications; I was also threatened with "future repercussions."

Contact me if you have any question or wish to comment. If you would like a copy of any item on the enclosed list of my talks and articles, contact Virginia Yardley at my office.

Sincerely,

David Langer

© 2001 DAVID LANGER COMPANY, INC.