I happened to see the following quote while watching the movie, “The Big Short”, and I thought that it was perfect for what is transpiring within DB pension plans.
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” – Mark Twain
According to Alex Shephard, New Republic, Mark Twain never actually said this. However, there is another quote that speaks to the same issue but is actually real.
That quote is credited to Leo Tolstoy, from 1897, and it appears in The Kingdom of God is Within You.
Both quotes resonated with me because the entire public and multi-employer pension industry have been sold on the concept that assets and liabilities have the same growth rate. Given that “understanding”, naturally sponsors, consultants, and actuaries are singularly focused on achieving the return on asset assumption (ROA) to meet their funding needs.
Unfortunately, assets and liabilities don’t have the same growth rate, the ROA is not the holy grail, and DB pension plans will not survive unless a new course of action is taken. However, as stated above, because everyone is “firmly persuaded that he knows already”, trying to change 40 years of pension orthodoxy has proven nearly impossible.
We, as a nation, cannot afford the social and economic cost of our failure to provide for adequate retirements, but that is certainly the path that we have taken. I say it is long overdue that we choose the path less taken before it is too late.