STUMP » Articles » 80 Percent Funding Hall of Heroes: Welcome, Evan Inglis! » 7 April 2015, 22:29

This was originally going to be an 80% funding hall of shame post.

I came across this WaPo editorial:

Closer to home, in Maryland, however, the cause of pension reform is moving in reverse. Maryland’s pension predicament is not quite as dire as that of Rhode Island. Still, the state has only two-thirds of the funds necessary to meet its long-term obligations, well short of the widely accepted benchmark of 80 percent. And the modest reforms enacted under Gov. Martin O’Malley (D) in 2011, which were designed to achieve that goal by 2023, are at risk of unraveling. In particular, the General Assembly has repeatedly broken the reform plan’s promise of $300 million per year in supplemental funding for the pensions. Last year, lawmakers slashed that to $150 million, and this year are set on $75 million; they want to use the money to supply current state workers a 2 percent pay increase.

I believe I’ve mentioned before that I have an order of preference for dealing with these situations.

My first choice is to comment on the piece itself. I tried to do that, but WaPo kept making me go through more and more hoops, that I was going to shift to step 2, which is write a letter to the editors.

Lo, I beheld this letter this morning:

The April 5 editorial “Short-term thinking” perpetuated a misunderstanding that 80 percent is a benchmark or standard for pension funding. Only in unusual situations is anything other than 100 percent funding the target for a pension plan that is prefunded with assets.

In fact, only funding at 100 percent achieves equity of costs between generations of taxpayers and other stakeholders, such as bondholders, in the finances of a city or state. A $60 billion pension fund, such as in Maryland, that is 80 percent funded would have decided to pass $12 billion in costs on to future stakeholders. At 69 percent funded, as the Maryland pension system was on June 30, about $19 billion is being passed on to future taxpayers and other stakeholders. That number is based on the official $60 billion actuarial liability estimate. Most objective financial experts would assess the $60 billion liability as an understatement because it is based on an assumption that the pension fund assets will earn a fixed rate of 7.65 percent in the future. That rate is probably too high in today’s world of low growth and low interest rates.

Despite the misunderstanding about 80 percent funding, The Post should be applauded for calling attention to this local example of public pension plan funding issues.

Evan Inglis, Vienna

I happen to know that Mr. Inglis is an actuary in the Virginia area, and I am happy to see I am not alone in this specific crusade.

I welcome anybody who makes these points in public, to counteract the “Everybody says…” or “Experts say…” common knowledge that is completely fraudulent, to my hall of heroes, so welcome, Evan Inglis!

Heck, if I get quotes counteracting the 80% myth from the Academy itself getting quoted in the press, I will trumpet every single example I come across.

Nice point on the discount rate, too, Mr. Inglis.

While I do followup on every example I can find, I am so happy when I find out someone stepped in front of me to get business done.

I do want to be fair, like Mr. Inglis — almost all of the 80% hall of shamers aren’t trying to say a bad situation (underfundedness) is actually good. They’re usually pointing out horribly low fundedness levels (and boy, do I have a shocking example to write about later), and were trying to figure out a reasonable level to compare it against.

It just so happens the proper comparison is against 100%. Not 80%.

(and then, and Inglis mentions, the valuations include assumptions that push the 100% level much lower than they probably should be.)

Anyway, yay! The more the merrier!