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Jeremy Gold, Actuary Who Warned of Pension Crisis, Dies at 75
Jeremy Gold, an actuary who more than 25 years ago warned of the financial debacles now slowly playing out among the cities and states that sponsor pension plans for their teachers, police officers, bus drivers and other workers, died on July 6 in Manhattan. He was 75.
The cause was myelodysplastic syndrome and leukemia, his son, Jonathan, said.
In 1985, Mr. Gold became one of the first American actuaries to work on Wall Street, straying from the profession’s typical career track in insurance and consulting.
It was the heyday of the corporate raid, when high rollers like Carl Icahn and T. Boone Pickens were buying up companies, firing the managers, turning everything upside down and reveling in the shareholder value they claimed to have created.
Often, the raiders went after companies with pension funds, which happened to be Mr. Gold’s métier. They said the funds held far more money than they needed, grabbed what they said was the surplus and used it to finance their takeovers. When the dust settled, the money was gone, and workers’ hopes for a decent retirement were dashed.
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The raids inspired books, movies, Broadway productions like Ayad Akhtar’s “Junk” and, eventually, a federal law slapping a punitive tax on any raider who looted a pension fund again.
But for Mr. Gold, they raised big questions about the advice actuaries gave employers on how to run their pension plans.
Why did the raiders keep finding overstuffed pensions to exploit? Could actuarial practices be making employers vulnerable? What if it was not just a few wrong numbers here and there, but a bedrock flaw in the actuarial standards that could lead to a systemic disaster?
Mr. Gold eventually concluded that the standards were indeed dangerously flawed, and embarked on a 30-year mission, as he put it, “to save my profession.”
Pension mishaps, he knew, would be devastating as baby boomers aged and retired, because the amounts of money involved would be vast. Much like lawyers and accountants, actuaries have a professional duty to protect the public and to serve the greater good. If instead they were putting their clients in harm’s way, even unintentionally, he thought, the public would eventually catch on, actuaries would be blamed, and the whole profession could go down in a cascade of ignominy and lawsuits.
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If the problem lay in weak actuarial standards, he concluded, the solution would be tighter standards.
More than 30 years later, the tightened standards are still mostly on the drawing board, and change has come too slowly to avoid painful reckonings in places like Detroit, Puerto Rico, Stockton, Calif., and perhaps, soon, Chicago — or to prevent the looming collapse of big pension plans for retired Teamsters and coal miners.
But the fact that stricter standards are being considered at all is testament to Mr. Gold’s conviction that actuarial science was broken, and his refusal to stop saying so.
“Within the actuarial profession, Jeremy has done more than anyone to move this forward,” said Ed Bartholomew, a former chief financial officer of the Inter-American Development Bank, who led a reform of the bank’s pension management following the recent financial crisis.
Mr. Bartholomew, now an independent consultant, said he thought work on new actuarial standards was “going in the right direction.”
“For that,” he said, “I give credit to Jeremy, who has been pushing these ideas for 20 years.”
But even as Mr. Gold won converts, he antagonized many colleagues, who believed the traditional actuarial methods were sound and thought he was harming the profession’s credibility.
He also earned the enmity of union officials, who thought his campaign threatened their members’ benefits. In fact, Mr. Gold was a lifelong liberal Democrat, the son of high school English teachers who knew firsthand the value of traditional pensions.
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He came to his understanding of the pitfalls in actuarial science during his work on Wall Street in the 1980s. It wasn’t just the corporate raids; the 1980s were also a time of groundbreaking theoretical advances in financial economics, a specialty that concentrates on trading, pricing, hedging and risk.
From his vantage point as the head of Morgan Stanley’s pension division, Mr. Gold could see the lessons of financial economics being applied to everything around him — except pensions.
Financial economists were concerned with accurately measuring the cost of transactions that would happen in the future. Actuaries were focused on estimating pension costs and then spreading out the cost as smoothly as possible over time. Their clients wanted slow, steady funding schedules that would pay for their workers’ benefits over the years without surging every time the markets soured or interest rates spiked.
That meant actuaries were not terribly concerned about up-to-the-minute asset values, or measuring pension obligations the way the markets would. Their numbers made sense to them, but not to anyone else. They often told clients to make bigger contributions than current market conditions called for, knowing it would result in excess funding, which would fill the hole later on when the markets changed.
That was why the raiders of the 1980s found troves of pension money that seemed to be just sitting there, waiting to be captured.
Confusion about actuarial numbers also helps explain why so many state and local governments promised valuable pensions without understanding how much it would cost to pay them.
In 1995 Mr. Gold applied to the doctoral program at the University of Pennsylvania’s Wharton School, saying he wanted to research how pension finance had come to be so muddled.
Campaign Taxonomy:
Teamsters from across the nation descended on Capitol Hill this week to lobby lawmakers and learn about the union’s plans to get involved and activate membership in advance of the 2018 election.
About 125 political coordinators from locals all over the U.S. spent today going from office to office meeting with elected officials and talking about pension reform, specifically the Butch Lewis Act. The bill would boost financially troubled multiemployer pensions so they don’t fail. It would create a new agency under the U.S. Treasury Department that would sell bonds in the open market to large investors such as financial firms.
Two of those Teamsters involved in such efforts were from Local 104 in Phoenix. Dawn Schumann, the local’s statewide political coordinator, and Ryan Proctor, a business agent, visited seven offices and met with lawmakers and staff. Their message was pension reform is necessary for workers.
“There needs to be some kind of reform for these members,” Proctor said. “They set this money aside. They worked these hours and are entitled to their pensions.”
Among their stops was to the office of Rep. David Schweikert (R-Ariz.), a member of the Joint Select Committee on Solvency of Multiemployer Pension Plans. There, they left 1,500 petitions from Arizona Teamsters asking the lawmaker to support the Butch Lewis Act.
Pensions were also a top issue during the first day of the Teamsters Political & Legislative Coordinators Conference, when several lawmakers spoke to attendees about the need for reform.
Rep. Richard Neal (D-Mass.), lead sponsor of the Butch Lewis Act in the House, thanked the Teamsters for all their work to get the word out on the legislation. “I’m delighted with what you have done on this,” he said. “The Democrats will hold fast. We have got to convince some Republicans. And I have a few in mind.”
One GOP lawmaker who doesn’t need any convincing is Rep. Peter King (R-N.Y.). He became the first Republican to co-sponsor the bill, and said more in Congress need to stick up for pension reform. “I am proud to be on the bill and will do everything I can to enact it,” he said. “Working people kept their part of the deal on this. To lose [their pensions] now … is completely unfair.”
The concerns of the Teamsters, however, go beyond pensions. Speaking about trade, Rep. Linda Sanchez (D-Calif.) said the North American Free Trade Agreement (NAFTA) is one area where a bipartisan solution involving the White House might be possible.
“Every year … we try to build a better template for NAFTA,” she said. “I hope this is an area where Democrats in Congress and the administration can find some common ground.”
Meanwhile, Teamsters General President Jim Hoffa, speaking to attendees, told them they must be ready to seize upon the momentum building to elect officials who will stand up for hardworking Americans.
“People are saying what the heck is going on,” he said. “Things are changing. We need to get people out to the polls. We have to be at the forefront to turn this thing around.”
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