“It has become clear that projects that the (task force) would like to complete that may fall primarily under either the SOA’s education-research mission or AAA’s public policy focus are becoming increasingly difficult to complete under the joint governance model,” wrote the leaders of the two organizations.

One of those projects was a working research paper, “Financial Economics Principles Applied to Public Pension Plans,” which calls for public pension plans to use a risk-free interest rate to calculate future obligations, a standard used by private sector defined benefit plans.

Public pension plans use a much more forgiving actuarial standard for assessing future liabilities, which commonly assumes a rate of return on pension assets of 7 percent to 7.5 percent. The risk-free rate that actuaries recommend in the paper would be pegged to the 30-year U.S. Treasury, which now yields about 2.5 percent.

The recommendation that public pensions apply a risk-free rate to assess liabilities has massive political implications, as using the lower assumed rate of return would swell the collective $1 trillion funding deficit for state-sponsored pension plans to nearly $3 trillion by some estimates.

Those higher liabilities would ultimately fall on taxpayers, as states would be required to increase annual contributions to pensions or face the risk of seeing their credit ratings downgraded.

In Illinois, for instance, the Board of Trustees for the Illinois Teachers’ Retirement System, the state’s largest public pension covering nearly 400,000 teachers, recently voted to lower the assumed rate of return from 7.5 percent to 7 percent. Had the lower rate been applied to this year, the state would have had to contribute another $421 million to the pension fund.

Media attention forces SOA and AAA hand

When the SOA and AAA announced the disbanding to the Pension Finance Task Force, the leadership specifically cited the paper calling for a more conservative measurement of public pension liabilities.

The work was intended to be published jointly, but the organizations’ leadership said that was “no longer feasible.”

The four authors of the paper were prohibited from releasing it on their own, but were encouraged to express their personal views in other forums, according to the joint release.

Edward Bartholomew, one of the paper’s four authors, told Pensions & Investments the paper was “censored” by both SOA and AAA. “They didn’t want it to get out,” he said.

That interview and story was referenced in several ensuing media reports, including opinion pieces in the The American Interest and The Wall Street Journal, which ran its coverage of the paper’s alleged suppression under the headline “Covering Up the Pension Crisis.”

SOA says media mischaracterizing issue

This week, Craig Reynolds, president of the Society of Actuaries, published a letter saying an updated version of the paper will be available to view on the organization’s website during the week of September 5th.

The decision to do so was made before The Wall Street Journal published its opinion piece, which Reynolds said “misrepresented the viewpoints an activities of the SOA.”

Reynolds explained that the SOA and AAA were unable to reach agreement on an “acceptable” version of the paper.

Previously, the SOA has advocated that actuaries to public pension plans disclose obligations and liabilities at the more conservative risk-free rate, noted Reynolds.

Beyond publishing an updated draft of the paper next week, the SOA is hosting a webinar on September 27, where one of the paper’s authors will present views on public pension actuarial standards.

AAA’s response to censorship allegation

Tom Wildsmith, president of the American Academy of Actuaries, called the accusation that the Academy is suppressing the paper “false on its face,” in a letter to AAA members.

The working draft that was submitted for editorial review was “poorly written, poorly organized, and difficult for non-specialists to read,” said Wildsmith, explaining why the paper was not published.

The paper’s tone was “more appropriate for an economic manifesto than an objective policy analysis,” he wrote. Upon receiving the first round of peer review comments, several members of the Pension Finance Task Force rejected the process and “left the table,” according to Wildsmith.

“That made it impossible for the task force to bring the report up to the academy’s standards,” he said.