STUMP » Articles » 80% Public Pension Funding Myth Round-Up for 2019 » 6 January 2020, 20:46

I just checked, and my last 80% funding myth post was in June 2019, and that wasn’t really a “real” post of that category. Heck, I never had a “real” 80% funding myth post last year [And, I am actually building this post on one I started in 14 January 2019, which I never finished.]

I hadn’t been posting about this during 2019, but not because there were no incidences of the myth. It’s just that other things took precedence. I haven’t checked my output for 2019 compared to other years, but yes, I was very tired and had to cut back at multiple points during the year.

Anyway, let’s look at the stats.

QUARTER-BY-QUARTER RESULTS

So in my spreadsheet, I have been keeping up with the incidences. I still have my google news alert, and many people were helpful in catching incidences the alert missed (mainly because my alert is on “80% funded pension” and if they move it to something other than 80%, then I can miss it.)

So here’s a graph:

You can see the incidence really dropped off in 2019. Again, I was checking everything that my news alert caught (some of it has nothing to do with funded ratios, fwiw.)

And here’s the split out by whether the author says that 80% is “healthy”:

Nothing particularly special about the breakout, but it is something I like keeping track of.

THE MEANING OF THE DECAY

I would love to think I had been such an effect, driving this dropoff in the quoting of the 80% funding myth.

But let me be realistic: almost definitely this is being driven by stagnating funded ratios, where 80% is aspirational. The post I built on from 2019 had this bit in it:

Texas Teachers’ Closes Out Year with $1.8 Billion in New Commitments Across 12+ Strategies

The Texas Teachers’ Retirement System (TRS) approved over $1.8 billion in commitments to more than a dozen strategies during December, a recently issued report from the pension revealed.

…..

TRS is currently at 76.9% funded, and it is projected to take 31 years for TRS to reach 80% funded.

What?!

So an improvement of three percentage points in fundedness takes over 30 years?

Whaaaaaaat?

via GIPHY

Okay, Texas TRS is screwed up in its own particular way, but that line was dropped into the article without further comment. I’m just saying a LOT of public pensions are really challenged to improve their funding level, and for many, 80% fundedness is very aspirational. Don’t talk to them about 100% fundedness.

THREE HEROES FOR 2019

Speaking of 100% fundedness, I have three new entries into my heroes list.

Let’s quote them!

The Civic Federation:

No well-run pension fund has a funding target level of less than 100%.

Woo!

via GIPHY

Vance Ginn, Center for Economic Prosperity at the Texas Public Policy Foundation:

Some consider a funded ratio of 80 percent as “actuarially healthy,” but anything below 100 percent isn’t fully funded.

Yes!

via GIPHY

Dick Spotswood, Marin Independent Journal:

Anything short of 100 percent funded implies that when the piper needs to be paid, taxes will need to rise to cover the deficit or public services are diminished.

Well done!

via GIPHY

What’s sad about all this is that this plain comes from the definition of fundedness. If you know what funded ratios mean, it’s obvious that 80% fundedness is meaningless.

EVILNESS CONTINUES

Being a Catholic, I am well aware that evil persists, but it doesn’t need to persist in the pension arena. But it does.

I am fully expecting additional entries to my Never Fully Funded List of Evil, especially since the worst plans are not really improving.

So welcome, Joel Pafford, PRESIDENT, BOARD OF DIRECTORS, RETIRED PUBLIC EMPLOYEES OF NEW MEXICO AND RATON RESIDENT:

What’s going on? Quite simply, it has become the mantra of some pension fund administrators, financial consultants that benefit from such schemes and ideological zealots that government pension funds should be 100% funded. These individuals are wrong. A recent report from the highly respected Brookings Institution, “The Sustainability of State and Local Government Pensions: A Public Finance Approach,” debunks this false narrative. Tom Sgouros also discusses these issues in his 2017 report for the Haas Institute at the University of California, Berkeley.

I know Tom Sgouros has no shame with respect to this, and I pray for his soul, because he will have a lot to answer for.

via GIPHY

THE COUNT CONTINUES

In any case, I still have my news alert, and I’m still keeping up my spreadsheet.

But I think the 80% funded myth is dying…

… because the “we can do pay as we go!” is replacing it, as the goal posts are moving much more drastically than I expected.

But back to the point: if, after a long bull run, the pensions can’t even break through 80% fundedness, that’s not a sign of “stability” but a sign of weakness. If a 20% market drop occurs – what then? Start telling retirees that 50% fundedness is just fine?

In the long run, a 70-80% target gets beaten down to 60%, and then when it’s pay-as-you-go, that can run for a bit.

But not forever.

No, I’m not quoting the “regular” entries for the Hall of Shame in 2019, mainly because there is nothing new or interesting about it.

But that this myth is dying is not making me feel much better about what is replacing it.