[mch82]

“impractical rate of return” is one element of “mismanaged”

Pensions are nonexistent now because other compensation packages have become the norm. Actuarial regulation has changed to incorporate lessons learned from pension fund failures. The goal of the regulatory changes is to decrease risk to consumers in contemporary actuarial products.

That’s about as deep as I can go on this topic. I’m not an actuary, by a number of my friends are and actuaries talk about lessons learned from failed pensions like engineers talk about lessons learned from failed software development projects. Evidently, demonstrating knowledge of those failures and the resulting controls is a key element of earning the title of professional actuary.

[mch82]

Continuing with the car loan analogy, the interest portion of the car loan is similar to the guaranteed rate of return in a pension. If a car company sets up a loan with a bad interest rate the car company will lose money on the sale.

The main difference between car loans and pensions is the time horizon. It’s much simpler to manage the risk of a 3-5 year loan than a 30+ year retirement that begins 45 years in the future.