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Wednesday, February 17, 2010

Steve Goss, SSA's Chief Actuary, on the Death of Robert J. Myers

Stephen C. Goss

Robert "Bob" Myers was indeed the father of all actuaries who have worked on Social Insurance. As a junior actuary he was deeply involved in the development of the Social Security program even before its inception in 1935. As Chief Actuary at SSA he later did the development work and estimates for Medicare. Although contentious at times in the past, his relationship with Bob Ball reflected mutual respect and principles that now seem far closer together than they believed at the time. Bob was active, engaged, and advising to those who followed to the end. He is singularly responsible for the strength and principles now cherished and guarded at the office he formed. But he will be best remembered by many of us for his simple and modest disclaimer at the beginning of public comments for decades where he proclaimed himself "a lifelong student of Social Security."
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For more on Robert J. Myer's death, see NASI's February 15th statement. The Washington Post obituary about Bob is available by clicking here.
By Elaine Fultz:

One of my salient memories of Bob Myers is his subtle view of the Chilean pension privatization, of which he was one of the conceptual architects. I recall his saying when that subject came up that he felt that it was useful for Chile, given where that country was coming from, but that did not imply that this approach was good for other countries, in particular, the US. His sensitivity to context -- the notion that social security reforms should be "homegrown" in national contexts rather than borrowed from other countries' models -- got lost in much of the advocacy for pension privatization by the international financial institutions. I am not sure what Bob thought about the more recent, problematic evidence from Chile -- or even if he was following the developments. But I am absolutely sure that he would have been open and curious, and would have used his capacity for objective analysis to seriously weigh all the evidence.
By Bill Arnone: Bob was a wonderful teacher and an actuary's actuary. He had the unique ability to dive into Social Security's intricacies, explain their rationale clearly, and suggest workable reforms where needed. For a good look at his contributions, check out http://www.ssa.gov/history/myersorl.html.

In all of my conversations with him, which were too few in recent years, he never let partisan differences get in the way of intellectually honest discussions. He was a truly wonderful gentleman.
My name is Andy Lang and I am a 70-year old retired actuary.

I have disagreed with Meyers on how to fund Social Security ever since I took an actuarial exam in 1964 using his book and said then and ever since that PayGo has never worked anywhere, as it gets too little by way of investment returns compounded over time to help pay the benefits; and it is not hard to prove that mathematically and actuarially either.

It is also inherently unstable, requiring the system (Congress) to continually go back and either raise payroll taxes, reduce benefits or increase normal retirement age or all three.

Robert Meyers never worked anywhere but the government and hence never learned how to properly fund a defined benefit pension plan, which is what Social Security is supposed to be but really isn't. I always refer to it as a fake Potemkin Village Defined Benefit Pension Plan.

FDR made Social Security Pay-As-You-Go only because he had no place to put the money. Several early pension actuaries had suggested to him that the new system be actuarially advance funded just as all successful defined benefit pension plans had been since 1912, but he declined.

Where was he supposed to put the large fund's money? He couldn't put it in banks--thousands had failed. He couldn't put it in corporate bonds because many corporations had failed, wiping out bonds as well as stocks. He couldn't put in stocks as the 1929 stock market crash had kicked off The Great Depression.

He couldn't easily put it in marketable Treasuries either, because there was some question if the US could honor their obligations, and in addition their value might fluctuate unacceptably.

So he did what he had to do which is do primarily PayGo, with the small residual Trust Fund investing in specially issued and non-marketable Treasuries (which is to say lending it to the federal government), but intending to revisit that later on.

He died before the war ended. Had he lived I am sure he would have been reelected and changed that.

Anyway, I had many run-ins with Meyers and always said to him or the audience that Pay-As-You-Go or more correctly Partial PayGo is an artifact of the way we do accounting in the federal government, cash accounting, a system more appropriate for a corner candy store than a large complex organization that has obligations in the many trillions extending way into the future.

Accrual Accounting replaced cash accounting in 1934 for all publicly held firms when Joseph P. Kennedy told the nascent accounting industry that they had to change the cash accounting used by many corporations as it was a main reason for the 1929 stock market crash. Kennedy was the first SEC Commissioner. FDR appointed him, despite great criticism, because he said 'that bastard knows where the bodies are buried'. Kennedy was one of the very few on Wall Street that pulled his money out before the crash.

The only way to properly fund such systems is by doing an annual actuarial valuation using an Actuarial Cost Method known as The Entry Age Normal Cost Method.

This method was far and away the most popular method in use by pension-consulting actuaries in 1980 when a study was done showing that around 95% of pension plan sponsors used it.

The entire system collapsed soon thereafter due to Reagan's people, particularly his Chief of Staff, Don Regan, (and later on Treasury head) who had it in for the Big Four: Corporate Defined Benefit Pension plans and Retiree medical plans, and their national counterparts, Social Security and Medicare.

Regan had formerly been the head of Merrill Lynch, the world's largest brokerage firm, and had screwed up the firm back badly in 1974 and 1975 and meant to make amends by joining Reagan and becoming the Typhoid Mary of the American social security systems. After being shot down on Social Security privatization, he did his dirty work on the other three, and today the nation is hurting a lot. Although most people do not understand it, Medicare is being privatized as we speak—it began with Regan and Reagan and George W. Bush helped it immeasurably--and the private systems are nearly all gone.

Anyway, if you had to name a single individual who is responsible for not placing Social Security on a sound long-term sustainable financial basis. which is to say an actuarially sound basis, it would be Mr. Meyers. And if we do not fix it soon too, it will be privatized in due time, as the baby-boomers will double the number of retirees in ten years, retiring at the rate of 10,000 a day, and if we kick the can down the road, it will be too late.

Also, the very same fix to it is also necessary for Medicare and medical care, although they need other things as well.

Lastly this actuarial advance funding will build up substantial funds, which, once announced and explained, will get us out of the Great Recession sooner, and much stronger, as the steady capital will be partially invested in private securities, including stocks. These investments are made collectively by carefully selected and vetted managers, specialists in each asset class and then monitored for performance.

This methodology is nearly a hundred years old and its origins go back nearly 250 years to Britain. It is mathematically rigorous, systematic, highly disciplined, and self correcting too, and without it we have no chance of ever having decent affordable Social Security, Medicare or health care systems—but with these systems you can have low cost and good, stable systems.

Other nations need to do this as well. Even nations with national health care systems that better than ours, and cost a fraction of ours are now beginning to forecast ever-rising health care costs, as their nations get older due to fewer births and people living longer. The financial (and legal) underpinnings of these important systems need revision.
While I disagree with the comment by Andy Lang, this forum is not the place to debate that.

I am Howard Young, and my interactions with Bob were professional while I was on the UAW staff, collegial while both of us were members of the Pension Research Council and in other activity - including of course NASI, and personal. Since most Academy members know of Bob's professional activity, my focus here is his personal integrity and respect for others.

Bob always expressed his views in a clear and unambiguous way. He was ready to clarify any issue and instruct those who were uninformed about details, without a superior or flippant reply.

Socializing with Bob, and his wife Rudy, also was enjoyable. Professional disagreements didn't carry over to dinner conversation or otherwise, but Bob might use the occasion for informal education about Social Security or his other surprisingly widely based activity.

Finally, I want to point out that one of Bob's major achievements was to train exceedingly capable successors.

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