DAVID LANGER COMPANY, INC

ARTICLES BY TOPIC ¦ MEMOS TO CLIENTS

July 20, 1999

Re: Social Security's financial "problem" and the dilemma it creates for the actuarial profession

After months of trying to persuade the American Academy of Actuaries to examine what appear to be violations by the Social Security actuaries of its professional standards, I have come to feel that the Academy may, in fact, not wish to deal with this issue. Having uncritically accepted the finding in the Annual Reports of the OASDI Trustees that Social Security has a long-term financial problem, the Academy may have painted itself into a corner. The Academy's position has been presented by its officials at many meetings sponsored by the advocated of privatization and of the Administration as well. The latter is making political hay of the "problem" by proclaiming its solution for it that uses the surplus to "save" Social Security.

The Academy is now faced with a dilemma: If it authorizes an independent review of the alleged violations, which concludes there is no financial problem, then the Academy will need to make a public statement to that effect, and this will be greeted with relief by the public, but will greatly upset its political relationships.

As a member, I am now queasy about this organization, set up to foster professional standards of conduct and practice, itself giving the appearance of looking the other way on a matter of affecting the public at large of over 200 million persons. Has the Academy now become the agent of interests other than those of the public and of its members and the standards it professes on their behalf?

Enclosed are my July 7 letter to Dick Robertson, the Academy's president, spelling out the violations and how quickly they could be reviewed. Also, my June 14 article from Pensions & Investments, "Carl Ponzi returns: The privatization of Social Security harkens back to an old scheme."

Sincerely,

David Langer, MAAA

[Text of July 7 letter to Richard S. Robertson, President, American Academy of Actuaries]

As I noted during our phone conversation, I believe it is only a matter of time before the public becomes aware that the actuarial projections in the OASDI Trustee's Annual Reports may have problems associated with them. For example, the Knight-Ridder/Tribune newspaper chain that ran a recent column on OASDI's secret actuarial assumptions. If, in fact, the projected actuarial deficiency should come to be seen as not having been derived on the bases of the Academy's prescribed actuarial standards of practice, and that the public has thereby been misled for years now on OASDI's financial condition, it is safe to say that the embarrassment of our profession will be acute.

For the sake of the actuarial profession, you and the Board will wish to first assure yourselves of whether there have been violations and that the public has indeed been misled. This can be done rather quickly on an informal bases as follows:

Inconsistent assumptions used in projections prepared for the Social Security Advisory Council. Simply compare the GDP used for the OASDI projections and for those of the privatization proposals. The average used for OASDI was 1.5% compared to 3.5 to 5% for the privatization proposals.

Not revealing the input of the Trustees. See the actuarial certification of the Chief Actuary on the last page of the Annual Reports, where you will note no mention of the role of the Trustees.

Disregard of long and short term history. See my article in the May - June Contingencies. You will wish to have my data reviewed, and I will provide the data I prepared for my charts.

Since the first two are prima facie, perhaps a day or two would be all that is required, and you obviously do not need to establish a committee for this, which would only create further delays.

It would certainly be remiss to leave the Academy in a far more vulnerable position than might be the case if there is prompt action, which could make the Academy look good instead of it having to be on the defensive.

Sincerely,

David Langer