This is a routine practice for actuaries. Here's an actuary from 2008 in New York's pension system calling his calculations "voodoo:" "In an interview on Thurs

This is a routine practice for actuaries. Here's an actuary from 2008 in New York's pension system calling his calculations "voodoo:" "In an interview on Thursday, Jonathan Schwartz, an actuary, called his job “a step above voodoo” and conceded he skewed his work to favor unions. He also admitted to erroneously claiming that a controversial early retirement bill, backed by District Council 37, would have no cost, explaining, “I got a little bit carried away in my formulation.” [1] Again, my point is not just that 8.25% growth is a very optimistic assumption. My point is that we you guarantee a rate of return on investment, then you need to calculate the value of the guarantee explicitly, and the established formulas [2] for calculating the value of such guarantees do not require any assumptions about future growth rates - you are supposed to just use the "risk-neutral rate" rate, which is like the yield on US government bond. An example of the guarantee that I'm talking is this (from the article): "Highway Patrol officers could retire at 50 and receive as much as 90% of their peak pay for as long as they lived" ... So the pensioners are guaranteed to receive X% of their peak pay, regardless of what the actual rate of return turns out to be on the pension investments. This is equivalent to a put option, and the valuation methodology that the Chief Actuary used for this (according the article) is inexcusable - but not surprising. [1] http://cityroom.blogs.nytimes.com/2008/05/16/speaker-tosses-work-of-voodoo-actuary/ http://cityroom.blogs.nytimes.com/2008/05/16/speaker-tosses-... [2] https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model https://en.wikipedia.org/wiki/Black%E2%80%93Scholes_model