STUMP » Articles » Bye Bye 2018 - And the 80 Percent Funding Myth Persists » 31 December 2018, 11:36

Where Stu & MP spout off about everything.

Bye Bye 2018 - And the 80 Percent Funding Myth Persists  

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31 December 2018, 11:36

Ugh. What a year. I’m beat.

It also doesn’t help that I just slogged through the end of War and Peace (because I had to get it done by 6am this morning when the audiobook was going poof).

One of the things that was a positive for 2018 is that I’ve actually driven fewer miles than prior years:

It’s still about 100 miles per day, but you can see I’ve not taken any long road trips in a while, and I no longer have the extra miles to UConn. I still get in plenty of audiobook listen time, more of which tomorrow.

80 PERCENT FUNDING HALL OF SHAME PERSISTS

Yes, I’ve still been collecting names and pieces for my 80 Percent Funding Hall of Shame (plus heroes and Never Fully Funded List of Evil.)

But my news alerts haven’t been picking up so many such stories this past year… and I think it may be due to the goalposts shifting. For many plans, 80% is aspirational. I had already seen 70% floated as a new “proper” goal… but some are much worse off than that. Grabbing FY 2017 numbers from the Public Plan Database, I get the following histogram:

Of course, this is only by count, but 42% of the 173 plans in the database had funded ratios of 70% or less. I have a feeling that 70%, or even 60% (that’s a passing grade in classes, right?), will be the new 80%.

So let’s look at our summary stats, before I link to all the quotes (to be sure, some links may no longer work). Entries by quarter:

Number saying 80% funding is “healthy” breakout:

Totals:

Hall of Shame since inception (October 2014): 197 entries
Hall of Heroes: 26 entries
Ambiguous: 70 entries
Never Fully Funded List of Evil: 3 entries

FUNDING HEROES FOR 2018

I realized I hadn’t covered any of these this year as of yet, and here they are:

January 22—Ashly McGlone, Voice of San Diego:

In the private sector, unlike the public, federal law deems certain large pension funds below 80 percent funded as “endangered,” and those below 65 percent as “critical.” All except the airport would be considered “endangered” under those standards, despite last year’s improvements……The Government Finance Officers Association recommends public agencies adopt policies targeting 100 percent funding for pensions. The American Academy of Actuaries agrees.

March 26—Assemblyman Ned Thomson, R-Monmouth:

People seem to think that 80 is a magic number – no, 100 is a magic number. Remember, we were at 116 percent for all pension systems in 2001, and we dropped to 92 in one year in a $60 billion fund.

April 16—Amanda Kass, Center for Municipal Finance at the University of Chicago Harris School of Public Policy.:

in the video — about 3 minute mark: “So you want a pension system to be a 100% funded…”

June 05—J.G. Collins, managing director at The Stuyvesant Square Consultancy:

It is more than 45 percent of all the tax revenue New York state took in for the fiscal year ending March 2018. A 6 percent rate of return would also lower the state’s pension funding to just 77 percent of its current liability, below the old (and debunked) 80 percent “rule of thumb” pension managers used for years to judge whether pensions were well-funded. Today, though, the Government Finance Officers Association’s best practices target a 100 percent (full funding) of pension liabilities.

November 20—Jack Humpreville:

[As a result of the bull market, many pension experts believe that the pension plans should be 120% funded so they withstand a down market.]

December 01—Zachary Christensen, Leonard Gilroy, Steven Gassenberger, Vance Ginn:
bq.. The Actuarial Community agrees: 80% funded is NOT healthy!

UPDATE (just under the wire): December 28—Kathleen Wilson, VC Star:

How big of a funding ratio is enough is subject to debate. Some say 80 percent. Others want 100 percent.

Pension plans should have a strategy to attain or maintain a funded status of 100 percent or greater over a reasonable period of time, says the Pension Practice Council of the American Academy of Actuaries. Still, an evaluation of funding progress should not be reduced to a single measure or benchmark at a point in time, the council said.

Straight reporting! Woot!

Huzzah, y’all! I hope to hear more from these folks next year.

via GIPHYVentura County pension system funded at highest level in 10 years

HALL OF SHAME ENTRIES, 2nd HALF OF 2018:

July 22—Matthew Kaufman, Hartford Courant:

When Herbst took office, the town pension fund was 27 percent funded — far below the 80 percent level considered healthy for a public pension fund — and the town was paying less into the fund each year than it was supposed to.

August 21—Omaha World-Herald editorial:

At present, the pension fund liabilities for fire and police are only about 50 percent funded, for example. That’s far below the 80 percent level generally considered by financial experts to be appropriate.

September 24—Bob Hennelly, The Chief Leader:

Even with the regular payments, however, the city is still shy of the 80-percent-funded threshold that is the benchmark for a well-funded pension, and nowhere near the top-tier status that the state enjoys, with “a funding ratio of 94.7 percent for the [State] Employees’ Retirement System and 93.5 percent for the Police and Fire Retirement System,” according to the CBC.

October 04—Dustin Gardner, Arizona Republic:

To be considered stable, a pension plan must typically be about 80 percent funded.

November 07—Illinois state senator Dave Syverson:

“A pension can still survive being 80 percent funded,” Syverson added. “Most of us are open to the idea of looking at how we can adjust funding to make it still viable and actuarially sound.”

November 19—Debby Woodin, Joplin Globe:

The pension fund currently has a funded ratio of 64 percent, meaning it could cover that much of the benefits earned by existing employees. Pension funds are not considered healthy unless funding is at least 80 percent.

November 02—Joplin Globe editorial:

The recommended funding for defined-benefit retirement plans is 80 percent.

December 05—Jayme Stevenson is first selectman of Darien and a board member of the Connecticut Conference of Municipalities.:

To put this into perspective, plans are ideally funded at 80 percent or higher. Only three pension plans have achieved this funding status: The Municipal Employees’ Retirement System, the Probate Judges, and the Employees Retirement System.

December 13—Jim Waters, Bluegrass Institute:

Yet even after spending an additional $1 billion on TRS benefits alone in recent years, the system’s funding level has improved only slightly during the last five years and remains under 60-percent funded, far less than the 80-percent level which actuaries indicate is needed to keep pension funds off life support.

December 11—Kendel Taylor, finance director of Alexandria, Virginia:

Kendel concurs that “a pension that is 80 percent funded is definitely in great shape. However, we don’t shoot for 80 percent. We do shoot for 100 percent, but rarely get there. Changes in investment performance, changes in assumed rates of return, and other actuarial analysis and assumptions can quickly change a pension’s funded levels.”

December 19—Tia Mitchell, The Atlanta Journal-Constitution: bq.. An audit at the end of 2017 reported that 62 percent of the pension was funded. the industry standard is 80 percent.

December 30—Robert Congdon, Preston’s First Selectman and a member of the Connecticut Conference of Municipalities Board of Directors.:

Pension plans should be funded at 80 percent or greater.

Yeah, I almost threw that one into the ambiguous bin, but eh. You know how one needs to make quota at the end of the year.

Here you go, people:

via GIPHY

SEND IN ENTRIES

As I mentioned, I’ve got a news search for “80 percent pension”, but that search often misses when people are moving the goalposts.

What I’m looking for is any article where somebody — can be a quoted official or the reporter themselves — references anything other than 100% as the proper goal.

Please email me these: marypat.campbell@gmail.com

Don’t worry if you think the specific article qualifies or not – I have an “ambiguous” category, and I’ve been dropping things in there such as legislation where funding goals have been to something other than 100%.

I would be very happy if this series disappears, but I’m not sanguine.

Happy New Year!

via GIPHY

My main wish for 2019 is to get more sleep.


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