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June 24, 2020 • njlawpages

By:  Mr. Hegarty

Q:        When were you born sir?

A:         July 8, 1939.

Q:        How old are you?

A:         46.

Q:        What’s your occupation?

A:         I am an actuary and manager of the Chicago office of Whiteacre Company.  (The name is changed)  (3 pages of qualifications omitted)

Q:        Now, what does an actuarial clerk do?

A:         Performs actuarial calculations.

Q:        What are actuarial calculations?

A:         Primarily calculations of present values of annuities, the insurance premiums required to provide life insurance, cash surrender values, dividends.

Q:        Did you major in mathematics in the last two years of your undergraduate training?

A          The school I went to, Honors Mathematics, I took practically nothing but mathematics.

Q:        Now, that in itself had nothing to do with actuarial science, did it?

A:         It had quite a bit to do with actuarial science because actuarial science is primarily mathematics.

Q:        Yes, but it’s not actuarial science, is it?  It’s pure mathematics, it could be used for anything, couldn’t it?

A:         Some of it could, but some of the courses I took were actuarial mathematics courses.

Q:        How many of those did you take?

A:         Two specifically that were actuarial mathematics courses.

Q:        Two courses?  What were they called?

A:         Theory of Interest and Finite Difference and Life contingencies.

Q:        Okay.  And where did you go to work after the Standard Life Company?

A:         The Chicago office of the Whiteacre Company.

Q:        Have you been employed there from ’66 until today?

A:         From January ’67 until today, yes sir.

Q:        And what kind of company is the Whiteacre Company?

A:         Consulting actuaries and employee benefit consultants.

Q:        Consulting actuaries.  What else?

A:         And employee benefit consultants.

Q:        Employee benefit consultants.  Okay.  Are you an economist, sir?

A:         No, sir.

Q:        Do you have any education of any kind in economy, economic theories or the science of economics?

A:         I took an undergraduate course at the University of Western Ontario.  I took a commercial course at the University of Chicago.  There were some economics involved in my study of the actuarial exams.

Q:        So we have two courses in economics, more or less, and a third course partially involved in math, is that right?

A:         The Society of Actuaries course, it’s a course of reading, not a formal-taught course, but that’s approximately correct.

Q:        You consider yourself to be an expert in the science of economics?

A:         No, sir.

            (three pages are skipped)

Q:        What background expertise in school do you have to predict future economic events, if any?

A:         The only economic events that I would consider myself to have any expertise are in the area of rates of return on funds invested.  I did take in school one course in investment.

Q:        Are you through?

A:         Yes.

Q:        And how many courses does an economist need to take to become a Ph.D. economist, if you know?

A:         I have no idea.

            (skipped one page)

Q:        In your work at the Whiteacre Company, have you had occasion to determine the present value of a wage earner’s future income, sir?

A:         Yes, sir.

Q:        And when would be the first time you did that?

A:         Probably January 1967,

Q:        And what would be the occasion for that, sir?

A:         I routinely calculate to the present value of future wages of employees for my clients.

Q:        Why would you do that?

A:         To determine the costs of my client’s pension plans.

Q:        What would pension plans have to do with wages, sir?

A:         We routinely compute the cost of pension plan as a percentage of wages.

Q:        You mean to tell me that in determining a pension plan benefit, you have to take into account a future wage growth rate and an inflationary rate, sir?

A:         Yes, sir?

Q:        Do you do that every time you determine pension benefits?

A:         Any pension benefit that is related to pay or related to an inflation-driven component.

Q:        Do you have any pension clients, sir, that you do that for now?

A:         Yes, sir.

Q:        Who are they?

A:         Blackacre Retirement System.

            (The client name is changed)

Q:        Now, before you go any further, what’s your assumption in that pension plan of future money growth, do you know?

A:         I’m quite sure I recall the number exactly.

Q:        What is it?

A:         It’s 8 percent.

Q:        And what is your assumption, if you can recall, in that particular pension plan of the consumer price index?

A:         I don’t believe there is a specific assumption for the consumer price index in that plan.

Q:        Well, how could you determine what I have just asked you about, present value of future earnings of a wage earner, without that component, sir?

A:         You need not assume a rate of inflation.  You could assume a rate of increase in pay directly. (Future wage growth rate)

Q:        Well, what do you assume, then, for that?

A:         To the best of my recollection, it’s 8 percent.

Q:        So there is no differential between the two?

A:         In that case, that’s correct.

Q:        And you do that for your clients where you assume the interest rate (Money Growth Rate) to be 8 percent and the real growth pay (Wage Growth Rate) to be 8 percent, but in this case, you have assumed the interest rate to be 9.5 or 9.15 and the Wage Growth Rate to be only 5.5, is that right?

A:         No, that is not right.

Q:        What is right?

A:         The assumptions I use for the Blackacre retirement system are for a specific purpose.

Q:        What’s the purpose?

A:         The purpose is to determine a level of contributions from the Blackacre entity which will support the benefits provided by that system.

Q:        I thought you just told me that in a pension plan, you take into account your job, and you have in the past, and you do now, determine the present value of the future wages of an earner.  I think I asked you that.  You said you did in pension plans?

A:         I did that, yes sir.

Q:        Just a minute ago you said you are doing a pension plan now.  You identified it.  You indicated you did all that, and now you are telling me you don’t do that.

A:         No.  I said I did that, I do do that, and what I said so far is correct.

Q:        Do you have documents back at your office indicating the assumption you made about interest rate and real growth rate showing 8 percent for each one?

A:         For this particular pension plan we are talking about, the documents exist in the office, yes sir.

            (These documents were subsequently produced)

Q:        Okay.  And how many documents would they be, numbers?

A:         For this particular plan?

Q:        Yes.

A:         There is one per year.

Q:        You have one for 1985?

A:         Not yet.

Q:        ’84?

A:         Yes, sir.

Q:        Can you produce that to your attorney?

Later on

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