Illinois Fire and Police Pension Actuary Facing Actuarial Discipline – WP Exclusive
By: Mark Glennon*
WirePoints has learned that the Actuarial Board of Counseling and Discipline (the ABCD) recently recommended that Timothy Sharpe, actuary to dozens of troubled Illinois fire and police pension funds, be expelled from membership in the American Academy of Actuaries. If the Academy implements the recommendation, it will be very unusual since only 11 actuaries have been expelled from the Academy since 1975 and only 20 have been otherwise publicly disciplined (http://actuary.org/content/public-discipline).
The recommendation is the result of separate complaints by two actuaries, one by actuary Tia Goss Sawhney. Those complaints followed three prior complaints, two by actuaries and another by Jim Palermo, then trustee of the Village of La Grange, IL. Actuaries and members of the public may file complaints against actuaries who are members of the Academy of Actuaries for violations of the actuarial Code of Professional Conduct and Standards of Practice referenced in Precept 3 of the Code of Professional Conduct. The ABCD recommends expulsion or other public discipline only for the most egregious, systematic, and/or persistent violations of the Code of Professional Conduct and Standards of Practice.
Sharpe’s work was described in July 2015 by the New York Times in “Bad Math and a Coming Public Pension Crisis.” His work has also been discussed here in WirePoints, the Forest Park Review, and the Rockford Register Star. Some feel that some of Sharpe’s work used unrealistic assumptions about future plan experience that lead to lower estimates of fund liability, lower contributions (tax levies) and higher estimates of funded status than more realistic assumptions. Local officials obviously tend to find that attractive.
Surprisingly, Sharpe’s role as the pension actuary of choice for many Illinois fire and police funds may continue, even if he is expelled from the Academy of Actuaries and joins the Academy’s wall of shame. That’s because the Illinois Pension Code only requires that the actuary who calculates the tax levy be an Enrolled Actuary (EA) (40 ILCS 5/3-125, Section 4-118). Sharpe is currently an EA and a Member of the Academy of Actuaries (MAAA). Sharpe’s EA designation is conferred by the Internal Revenue Service (IRS). The IRS has its own processes for designating Enrolled Actuaries in good standing. Losing the MAAA designation will not impact his ability to maintain is EA status.
Maybe ABCD’s recommendation that he should lose his status, however, will impact his credibility in the Illinois fire and police pension community. Every fire and police plan and sponsoring municipality should be taking a hard look at whether its actuary has the skills and fortitude to provide a true picture of the liability taxpayers ultimately face. Most haven’t. Most wouldn’t know what questions to ask anyway. Kudos to the ABCD for lending a hand.
*Mark Glennon is founder of WirePoints. Opinions expressed are his own.