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Jeremy Gold, Actuary Who Warned of Pension Crisis, Dies at 75

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Jeremy Gold in 2015. He questioned the conventional wisdom on financing pensions and embarked on a mission “to save my profession.”CreditCole Wilson for The New York Times

By Mary Williams Walsh

July 13, 2018

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.

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.

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.

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.

“I would look to the principles of modern finance for guidance in the design of a more rational pension finance of the future,” he wrote.

By the time he emerged with a doctorate in financial economics, the big stock run-up of the 1990s was ending and the rich pension surpluses of the 1980s had disappeared. The baby boomers were retiring, the markets were gyrating, companies were trying to get out of the pension business, and state and local pension plans were struggling.

Those conditions intensified the opposition to Mr. Gold’s calls for sweeping change, but they made him all the more certain that change was needed.

Mr. Gold was born in Brooklyn on Nov. 28, 1942, to Sarah and Edward Gold, and grew up on Manhattan’s Lower East Side. He was accepted at M.I.T. at 16 but flunked out after three years as a math major. He ultimately received a bachelor’s degree from Pace College (now Pace University). Before joining Morgan Stanley he worked at the consulting firms Alexander & Alexander and Buck Consultants.

His two marriages ended in divorce. In addition to his son, he is survived by a brother, Jonathan, and a granddaughter.

A version of this article appears in print on July 16, 2018, on Page B7 of the New York edition with the headline: Jeremy Gold, 75, Actuary, Is Dead; Foresaw Crisis in Public Pensions. Order Reprints | Today’s Paper | Subscribe