Steve Nesbitt isn't often accused of being the Chicken Little type. In fact, he could easily serve as the poster boy for the button-down investment consultant community.
These days, however, Mr. Nesbitt is taking as much flak as an attack helicopter flying a recent mission over Baghdad, following last month's Wilshire Report on State Retirement Systems, which some critics are decrying as alarmist and misleading.
Among other things, the report pointed out that falling markets resulted in a 6% decline in assets, leaving 79% of state pension funds underfunded, up from 51% in 2001. At the same time, liabilities increased by 10%.
A letter to Mr. Nesbitt from Frank Ready, executive director of the Public Employees' Retirement System of Mississippi, Jackson, and president of the National Association of State Retirement Administrators, criticized the "alarmist tone" of the report, which, he said, "presents a distorted and misleading view of the fiscal condition of state pension funds." Mr. Ready said Wilshire failed to point out that defined benefit plan funding is "structured to be carried out over a long period of time."
In addition, the Southfield, Mich.-based actuarial firm Gabriel, Roeder, Smith & Co., a Wilshire competitor, submitted a letter to Wilshire pointing to the report's "alarmist tone" and "selective use of statistics." GRS listed eight objections, including that the report uses the market value of pension assets instead of the actuarial value, which, according to GRS, "amplifies the effect of market declines on funding ratios."
Mr. Nesbitt admits to being a little perplexed by the criticism. "I don't think it was alarmist," he said, noting the information was drawn directly from the plans, was prepared by actuaries and reflects circumstances as they existed when the information was prepared. "No one has questioned the facts for the last 12 years" in which the report has been issued, he said. But now that the market has turned sour, he added, "perhaps it's `kill the messenger."'