I don't know that they do know how.
. After reading about a local disagreement here in Hawaii about the state pension fund, I decided that actuaries are not to be entirely trusted about this.
. I gave the argument above, in this thread:
http://www.early-retirement.org/forums/f28/the-retirement-heist-57687-10.html#post1122273.
The controversy, earlier this year, was between George Berish, an actuary, who has studied and written about the Hawaii pension fund, and Colbert Matsumoto, chairman of the pension fund board of trustees.
. The fund is in some trouble, having 9 billion or so in unfunded liability.
. Matsumoto says the problem came in the 90s, when the Hawaii state legislature decided to take money out of the fund and spend it for other purposes, but Berish says that can't be right, because in 2000, after the money had been removed, the pension system was still fully funded.
I'm on Matsumoto's side, here, because the pension fund portfolio was heavy in volatile securities, and the apparent excess in value in the 90s should have remained in the portfolio, to help weather the subsequent dips in the market, which led to the current underfunding.
. Berish's actuary's view is a series of snapshot evaluations, done every June 30, but this is not a realistic view to take of an investment portfolio, whose value can be expected to fluctuate.
There may be a corresponding problem with the "excess value" in the pension funds that was removed by private companies.