June and July 2015 80 Percent Funding Hall of Shame (and Heroes!)
by meep
Whups, I missed posting about it last month, but the record is always there.
Before I get through the most recent entries, let me thank my referrers:
- Pension Tsunami with all things public pensions (plus some private pension issues)
- Wirepoints with all stuff Illinois
- Truth in Accounting, which looks at governmental accounting issues
- The Other McCain, with wombat and his bloggy round-ups (as well as other other conservative stuff)
- A commenter at syracuse.com – all commenters, feel free to link here!
Sorry to my retweeters — I wish twitter gave me an easy way to figure out who sent people here.
A FEW HEROES
I hadn’t updated this, but there were a few stories that provided references that I appreciated re: the 80 percent funding lie.
Here are three:
Police, fire pension plan growing, but still underfunded by Nancy Hicks
Generally, funded ratios above 80 percent are considered healthy. Those with lower ratios are not considered at risk if the plan has a mechanism for moving toward the 100 percent target, according to the American Academy of Actuaries.
Go below for some comments on what Hicks did.
EDITORIAL: Riverside County pension funding still shaky from the Press Enterprise
That statement commonly is repeated in discussions about pension funding. But according to an issue brief by the American Academy of Actuaries, the 80 percent standard is a “myth.”
“Left unchallenged, this misinformation can gain undue credibility with the observer, who may accept and in turn rely on it as fact, thereby establishing a mythic standard,” reads the brief. Granted, a funding ratio of 80 percent is better than something less, but it is still far from the objective of at least 100 percent funding. County pensions haven’t been at full or super-funding levels for 15 years.
AWESOME!
That is a perfect way of putting it.
Curtis Lee, quoted in a piece:
He knew if a pension fund is less than 80 percent funded, it’s troubled.
Now you may think that last one undercuts what I’m trying to get at.
But let me be clear on this:
1. I do not expect journalists to be able to declare definitively on this matter, or editorialists. The most I’m looking for is not a mindless parroting of “they say” without looking for alternative viewpoints. Simply quoting the American Academy of Actuaries on the matter is good enough to me.
I am just fine with how Nancy Hicks wrote her piece, and I commend any reporter who indicate that this 80% funding benchmark may not be quite on the level.
2. With regards to Curtis Lee, he is making a point I’m trying to make: it’s not that those above 80% are healthy, but that those below under 80% aren’t in good shape.
And that’s an important point, because many people are trying to move the goalposts. So many pensions are below 80%, even after multiple years of a bull market, that it’s becoming difficult to hang onto the “over 80% is healthy” lie when they can’t even reach that point.
AND THE USUAL VILLAINS
Here we go. I’m just going to pull out the relevant quotes. Some of these people are repeat offenders.
They also suspended the payment of guaranteed annual cost-of-living adjustments to retirees until the pension system is healthier financially, defined as 80 percent funded.
I guess it’s “healthier”, but nah. It’s not the reporter’s fault, btw — she didn’t make the definition. I blame the Rhode Island politicians for this deal. 80% was way too low of a target for giving COLAs back.
Once payment is made, any unfunded liabilities become ours. They do not belong to all Ohioans. And OPERS’ funding is strong at 84 percent, well above the 80-percent threshold of excellent health. Our amortization period, in which we can pay off those unfunded liabilities, is 24 years. That’s well under the state-mandated boundary of 30 years.
This is a pension fund official who should know better.
SHAME
Francesca Kefalas, Norwich Bulletin, and Brooklyn (CT) First Selectman Rick Ives:
But what the town was doing was funding the Hooker and Holcombe recommendation at 100 percent. Ives said very few towns actually have a 100 percent funded pension fund because of the variability of investments and payouts.
The town pension fund should not need to payout 100 percent of its value at once, Ives said.
Hooker and Holcombe informed Ives most towns fund theirs at 80 to 95 percent, with the intention of trying to be 100 percent funded. An ideal funding level is 85 percent or better.
Ideal?! REALLY?!
Maddie Hanna and Andrew Seidman, Inquirer Trenton Bureau:
A funded ratio of 80 percent is considered financially healthy.
If I ever find out an actuary making this claim, I’m going to report them to the ABCD. I’m not kidding. They should know better.
But I know it’s generally politicians and/or accountants making this claim.
Nate Balerman of Rehmann Robson:
An audit report delivered by Nate Balderman of Rehmann Robson included a warning that financial figures will look worse next year when pension liability is required to be included. Lenawee County’s pension liability was more than 80 percent funded, according to a 2013 report, he said.
“Eighty percent is pretty healthy compared to a lot of places,” Balderman said. The unfunded liability came in at nearly $13.9 million in 2013.
Okay, this one is not nearly so bad. 80 percent does look better than many places. But it’s not healthy.
Generally, an 80 percent funded ratio is considered healthy.
Looking up a few…. you see why I have a form email/comment in my documentation of the Hall of Shame. I don’t need to get creative, because it’s not like the reportage is.
A fiscally sound pension fund should have about a 30-year amortization and an 80 percent funded ratio.
The amortization period is a new one to me. Btw, more than 30 years is definitely wrong (unless people are working for you for 60 years), but that doesn’t mean 30 is good enough.
A funding ratio is the percentage of future retirement payments that can be made with the value of the fund’s current investments. Accountants describe a fund as being in good condition if it has a funding ratio of 80 percent or more. Employer contributions are supposed to be made in an amount recommended by financial analysts, or actuaries, hired to advise the funds.
Yes, accountants are silly people, aren’t they.
Carrie Wells, The Baltimore Sun:
Typically, a pension system must be more than 80 percent funded to be considered healthy.
Wells is a repeat appearance, but I was unable to contact her previously.
Many experts say a healthy pension program should have enough funds to cover at least 80 percent of its long-term obligations.
Those silly experts.
Generally, pension fund analysts believe that they need to have at least 80 percent of liabilities covered by current assets to be considered healthy.
Enough qualifiers in there, Walters?
Oh well on my hope that my Hall of Shame may get shut down. I’m thinking no for quite some time, unfortunately.
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