At the Half: Updating the 80 Percent Funding Hall of Shame
by meep
No, I hadn’t been posting about the 80 percent funding hall of shame lately, but I have been updating my records.
Let’s see what I have through the first half of 2018!
THE STATS
Before I give you the new (and repeat) entrants, let’s check the numbers!
It’s been chugging along at about the same clip as before… and about those calling 80% funded “healthy”:
It’s still a goodly chunk.
For an explanation: Words Have Meaning: Neither Kale Nor 80 Percent Funded Public Pensions are “Healthy”
I have a total of 185 entries (a few were undated, so the graphs don’t match that), of those 185, 102 mention that 80% is “healthy”, and 7 say that 80% is “ideal”.
NEW ENTRANT TO THE NEVER-FULLY-FUNDED LIST OF EVIL
For those who make the argument that deliberately underfunding pensions are okay, and what’s so bad about pay-as-you-go, we’ve got a new entrant quoting the Original Sin (that is, Tom Sgourous’s paper).
Congrats to Ellen Brown at truthdig!
In an illuminating 2017 paper for UC Berkeley’s Haas Institute titled “Funding Public Pensions,” policy consultant Tom Sgouros showed that the push to put pension fund money into risky high-yield investments comes from a misguided application of the accounting rules. The error results from treating governments like private companies that can be liquidated out of existence. He argues that public pension funds can be safely operated on a pay-as-you-go basis, just as they were for 50 years before the 1980s. That accounting change would take the pressure off the pension boards and free up hundreds of billions of dollars in taxpayer funds. Some portion of that money could then be deposited in publicly owned banks, which in turn could generate the low-cost credit needed to fund the infrastructure and services that taxpayers expect from their governments.
Oh, that paper was illuminating, all right.
It helps identify idiots or just plain evil folks.
And yes, deliberately deciding not to pre-fund public pensions is evil. It’s theft from the public employees, and it’s ultimately theft from bondholders and taxpayers.
FIRST HALF OF 2018 HALL OF SHAME ENTRIES
Well, we’ve got 17 new entries (3 I dispatched in other posts), so we had best get to them.
The city’s own reports found that the funding status for the various funds ranges from between 57 percent to less than 70 percent funded, well below the 80 percent funding level that analysts consider healthy.
The funds’ weighted average funding ratio is just 62 percent, well below the national average of 72.2 percent and far below the 80 percent funded level considered “healthy” by experts.
Indicatively, a ratio of at least 80% is often considered healthy.
Man, I would’ve thought Tyler Durden would know better.
A ratio of at least 80 percent is often considered healthy.
Ah, good ole Hilary Russ. She’s definitely up there in the count. I’ll count appearances another time.
Dan K. Eberhart, CEO of Canary Oilfield Services and an energy consultant:
Meanwhile, the public pension system is just 62 percent funded, well short of the 80 percent minimum to be considered a healthy fund by financial analysts.
Beth Musgrave, Lexington Herald-Leader:
Pension experts consider pension funds healthy when they are at least 80 percent funded.
Kendel Taylor, finance director of Alexandria, Virginia:
The optimal funding ratio for a pension fund is 80 percent, she said. The fire and police pension and the city employees’ supplemental pension both hover within a few points of that target.
OPTIMAL?!
Look, it’s bad enough when finance reporters go lazy with a “Experts say” construction, but when somebody who is supposed to be an expert says it’s OPTIMAL
Anyway.
John Pohl, President, Missouri Retired Teachers Association:
Being 80 percent funded is considered a strong position.
“Strong”. Hmm. Hasn’t supplanted “healthy” yet.
California Federation of Teachers:
The resolution directs CFT to sponsor legislation that would reduce the CalSTRS goal from 100 percent funded to 80 percent funded by 2046. The union believes this will make the pension system sufficiently healthy and free up funds for salary increases.
Dear lord, what is it with teachers that makes them happy getting only 80% of their pensions?
Yes, I know they don’t think that’s what they’re saying, but it is what they’re saying.
San Diego Union Tribune editorial:
That’s better than the 68 percent estimate from before CalPERS’ banner investment year, but it’s still far less than the minimum 80 percent level recommended by experts.
Minimum… hmmm. I almost shunted this to “ambiguous”, but no.
THE PENSIONS SHOULD BE FULLY FUNDED. AT MINIMUM.
James Salzer, Atlanta Journal-Constitution:
Pension experts typically call plans with at least 80 percent of assets needed to pay benefits relatively healthy.
Look at that weasel word: “relatively”. Nope, you’re on the list.
Daniel Gilbert, Seattle Times:
An 80 percent ratio is considered healthy by pension experts.
James Salzer, Atlanta Journal-Constitution:
Pension experts typically prefer to see the ratio above 80 percent, and Evans said he expects the TRS to get back up to 81 percent in five years.
Wait, you were on here just two links ago. Slow your roll, dude.
Christopher Burnham, President and Founder of the Institute for Pension Fund Integrity:
A pension fund is considered adequately funded when it is about 70% funded.
OH CHRIS NO. Look, I’m totally on board with your anti-divestment stance. But please. Don’t remark on 70%. (and he almost got away with it, too, as someone pointed this one out to me – my news search just sends me the 80% remarks)
It won’t hit the pre-recession level of 67 percent until 2046, and it’s not due to reach the optimal 90 percent level until 2059.
OPTIMAL?!
Yeah, I may need to add “optimal” to my list. I already had “ideal”
It currently has a funding ratio of about 63 percent of the benefits that are owed and will be owed for a time while the recommended level of funding is 80 percent.
Editorial at fredericksburg.com:
VRS is just 72 percent funded—compared with the 80 percent considered healthy.
But “healthy” maintains the lead for the description of 80% funded.
TOO AMBIGUOUS, NOT EVEN WRONG
In some of these cases, it’s not necessarily ambiguous – it can be reporting on a real law/regulation that I just don’t know about. Or I’m just not sure what the people are getting at.
Or I was in a good mood and decided it didn’t merit getting on THE LIST.
So huzzah. Maybe you don’t suck.
James Salzer, Atlanta Journal Constitution:
While pension experts typically prefer to see the ratio above 80 percent, it’s an improvement from recent years, and Georgia’s pensions are stronger than similar retirement systems in many other states.
Oh, this guy again. I must have still had the new year shine on me. Eh, I’ll leave it.
Will Schmidt, Springfield News-Leader:
A pension system’s health can be gauged by comparing the market value of the plan’s assets to its total liability. Using this metric, 80 percent is generally seen as a decent place to be, and 100 percent is ideal.
So very close to being right. I let it go.
Ralph Martire, Center for Tax and Budget Accountability :
“We are only 39 percent funded across all five systems,” Martire said. “We have an unfunded liability in the aggregate north of $131 billion. This is considered problematic since you are not considered healthy at the public-sector level unless you are at least 80 percent funded according to the Congressional Budget Office.”
Hmmm, okay, at least he’s learned to blame somebody else. (Though, that’s not exactly what the CBO said)
“Earlier on page six you and the Congressional Budget Office, which I am not sure I want to take fiscal guidance from, say 80 percent is considered healthy,” Wehrli said, asking if there is a scenario that can get them to that 80 percent. “That’s why I am wondering why you choose those numbers.”
Ah, asking about the CBO thing. Good. I put this here more to record it, rather than to complain about Grant Wehrli.
Incumbent Rep. Norine Hammond, R-Macomb, Illinois House of Reps:
Hammond also said if a constitutional convention was called, she would review the many options and recommendations that would be proposed. In the shorter term, if re-elected, she would support a bill that would fund the pensions at 80 or 85 percent. “Far too often, the crafters of these reform bills get stuck on trying to get to be 100 percent funded by a date in the 2040s,” Hammond said. “While that is a good goal, since we are over $100 billion in unfunded pension liabilities, it has proven to be impossible thus far to get there and still be constitutional. I would support a constitutional plan that gets us to 80 or 85 percent funded.
Sigh. So here’s the deal. Pensions should be 100% funded. That said, politicians have the “right” to underfund the pensions. So that’s what she’s doing here. Saying the pensions should be underfunded.
James Salzer, Atlanta Journal Constitution:
While pension experts typically prefer to see the ratio above 80 percent, it’s an improvement from recent years, and Georgia’s pensions are stronger than similar retirement systems in many other states.
HE REUSED THE LINE FROM TWO MONTHS PREVIOUSLY!
Jake Haulk and Eric Montarti, Allegheny Institute for Public Policy:
“There is still a long way to go for the funded ratio to reach responsible levels,” Haulk and Montarti say. “Getting to minimal or no distress – a funded ratio of 70 percent or higher — will almost certainly require reform of pension benefits.
Thanks to the sharp eye that sent me this one.
Greg Bishop, Illinois News Network:
Ratings agency S&P classifies a strong pension fund as 90 percent funded, above average is 80 to 90 percent funded, below average is 60 to 80 percent funded and a weak fund is 60 percent or below. All of Illinois’ pension systems fall under the “weak” category.
I have no idea if S&P actually does this. Greg may not be at fault here.
The failure of CalPERS funding to recover to the traditional level of 80 percent or more leaves little cushion to absorb another big investment loss.
“traditional”. Mmm. That’s a new one.
Better Government Association:
“For example, if a pension fund has $90 million in assets and $100 million in liabilities, it would have a funding ratio of 90 percent,” the BGA adds. “There is no official standard to what is considered a “healthy” public fund, but in the private sector, a fund generally is considered “at risk” when it’s under 80 percent funded.”
This is actually somewhat accurate. Because there are external regulations for private pensions, and private pensions that get categorized for being at risk have certain actions taken.
There is no such external mechanism for public pensions.
Tim Arends, the Traverse City-owned utility’s executive director:
The utility is on track to have 100 percent of its retirement liabilities covered within seven years — Arends said 80 percent would meet his comfort level.
I’m glad 80% makes you “comfortable”.
Financial advisers suggest covering at least 80 percent of the liability.
Indeed… they suggest COVERING ALL OF IT.
Tuesday’s vote followed months of discussion, triggered by projections that the system wouldn’t meet a long-term goal of assets equal to at least 80 percent of liabilities.
This is actually straight reporting. Jeff Amy wasn’t setting the goal, but reporting that their long-term goal was a deliberate underfunding of the pension.
BACKGROUND READING
Some of you may be new to my 80% funding crusade.
Let me excerpt:
November 2014: New Public Pension Series: The 80 Percent Pension Funding Hall of Shame
I have just about had it with the 80 percent.
Unlike the commonplace idiocies of ‘You only use 10% of your brain’ or ‘The Great Wall of China is the only manmade object visible from space’, the 80 percent myth is dangerous.
I speak, of course, of the supposed percent fundedness level at which public pensions are “okay”.
….
Today, I have decided to keep track of every idiot who refers to this 80% funding level (or something even worse) as proof that a pension plan is or is not okay. Generally, reporters fall afoul of this, and this is not necessarily concerning. People don’t think of reporters, as a group, as expert in anything.
But when there are politicians directly making decisions about public pensions, union leaders arguing about their public pensions, and dear lord, public plan TRUSTEES putting this bilge forth, that is super dangerous.
You don’t have to take my word for it.
The American Academy of Actuaries did a brief explaining the problem:
April 2014
The 80% Pension Funding Myth
The health of defined-benefit pension plans is
a key issue to the tens of millions of Americans
who are receiving or expecting to collect
pension benefits. Some have said that the
level of funding – specifically an 80% funded
level – should be used as a general benchmark
to determine whether pension plans
are financially healthy. In reality, however, no
single level of funding distinguishes a healthy
plan from an unhealthy plan. *In fact, plans
should have as their objective accumulating
assets equal to 100% of relevant pension
obligations.*
Then it goes onto explain why anything less than a 100% target leads to bad outcomes.
I obviously agree.
Related Posts
80% Fundedness: An Excellent Example and The Usual Disappointments
The End of an Era: Where are the 80% funding myths of yesteryear?
Why It's a Good Idea to Fully Fund Public Pensions
