STUMP » Articles » Kicking off the 2016 Eighty Percent Funding Watch » 7 March 2016, 05:27

Where Stu & MP spout off about everything.

Kicking off the 2016 Eighty Percent Funding Watch  


7 March 2016, 05:27

I kept putting it off, but the truth is that the 80% funding myth is continuing to tick along. I knew it would be there when I was ready.

For some particular offenders, I need to keep a count of how many times they refer to this bullshit.

Before I give links to those who have offended this year, so far, let me thank my referrers:

Also, thanks to those who have bought through my Amazon links! I got enough credit to buy data visualization book I wanted.

As for my quiet last week, I was doing some actuarial stuff, such as teaching a webcast on auditing actuarial spreadsheets, a followup to a December webcast I did on actuarial spreadsheet design. While these webcasts are geared specifically towards actuaries, pretty much all the techniques are widely applicable, and the high-level concepts come from best practices of software engineering. Check it out if that’s your sort of thing!


We’ve got some new entrants, and repeats, but it’s the same old myth in various guises. All of which we’ve seen before.

Repeat offenders:

Ralph Martire, Center for Tax and Budget Responsibility:

“The good news is that Illinois can actually resolve its problems in a very rational way, by simply reamortizing the debt it owes to its own pension systems,” said Ralph Martire. “Illinois, with a level-dollar payment instead of this back loaded ramp we could have, set around $7 to $7.5 billion, can get to 75-80 percent funded–you’re considered healthy at 80 percent–in 30 years, and still pay all of its current obligations over that period of time, to fund benefits to current and future retirees. It’s a workable fix and that’s a number that the state could actually afford.”

Pity they can’t actually afford to pay the pensions in full.

By the way, they’re not going to get to even 70% funded by paying only 80% of the ARC.

Prior appearance of Martire here.

Next repeat: Reboot Illinois.

This comes as part of an infographic.

So here’s the deal. Martire is trying to say that 80% is a reasonable target for a “healthy” pension plan, and making that target look achievable.

Reboot Illinois is using 80% as a comparison to show just how poorly funded the plans are.

You know what would look really bad? Comparing them to their real target: 100%.

Prior appearance of Reboot Illinois.


Most offenders of the 80% funding myth do some version of “experts say” without any particular people/sources quoted.

Let’s round those up!

Kansas City Star editorial:

That’s far below the 80 percent figure that’s merely the bottom of the “recommended” funding level for pensions.

Jacksonville Daily Record:

Most were technical, although one clarified the tax would terminate Dec. 31, 2060, or when the pension plans reached or exceeded 100 percent funded, whichever comes first. In previous pension reform discussions locally, when the question of what “fully funded” meant was brought up, some considered 80 percent to be a manageable threshold.

I assume some specific people said this. Do they have names?

Jim Water, Bluegrass Institute:

The Kentucky Teachers’ Retirement System (KTRS), which was more than 80 percent funded in 2000 – a level experts consider “healthy,” has lost half of its funding.

Oh, those wacky experts.

At the Tallahassee Democrat:

The system is funded at an 86.6 percent rate, above the 80-percent mark economists use to define a healthy pension system.

Do economists actually say that?


Judith Crown, Better Government Association:

“The state’s five pension systems that cover teachers, government workers, and elected officials average a combined funded ratio of 40 percent, about half the 80 percent funding level that is considered safe and a widely held standard based on corporate plans”

Okay, that’s true. There are some benchmarks in private pension legislation where certain actions are triggered at certain points, and 80% fundedness is one of those points.

Not sure what corporate pensions have to do with government pensions. Many of the valuation assumptions are very different, such as the discount rate allowed to be used. And the mortality assumptions. And all sorts of stuff.

Luke Broadwater, Baltimore Sun:

“Investment analysts consider a 70 percent-funded ratio the threshold for “fiscally sound” funds.”

I was taken aback by the 70%. I emailed Broadwater, and he gave me these sources for his statement:

State Pension Plans: Liabilities, Funded Ratios at Governing Magazine

Twenty-one states’ aggregate funded ratios fell below 70 percent, which Morningstar considers the threshold for fiscally-sound funds. When measuring liability per capita, Alaska, Illinois and Hawaii recorded the highest amounts.

The Morningstar report:

Over 40% of all states fall below Morningstar’s fiscally sound threshold of a 70% funded ratio.

Okay, that’s what Morningstar does. It would have been nice if he had spent a little space on naming Morningstar particularly. NAME YOUR SOURCES, REPORTERS! For crying out loud, Morningstar went to the trouble to make their own branded report. Give them a little love.

And they were doing a few different things in that report, and I’m not going to opine on whether it was a good approach. You can read it for yourself.


The people at fault aren’t the reporters, but the people parrotting the myth.

Oh look: Del. Neil Parrott, R-Washington, of Maryland:

“What drives structural deficits? Pension costs for state workers are one factor. Teacher pensions were funded at about 65 percent in the current budget,” Del. Neil Parrott, R-Washington said. “We need to get to 80 percent,” he said.

Pete Lear, the North Port Finance Director:

A well-funded pension plan is one that has the money to pay at least 80 percent of its promised benefits, Lear said.


How would you feel if the CFO of your life insurer said they needed to hold only 80% of their promised benefits, because that would be a well-capitalized company?

You don’t have to worry about that, as regulators keep an eye on insurers to make sure they have well over 100% at hand.

But while I don’t expect even financial reporters to know that 80% fundedness is a silly target (but they should know to NAME SOURCES), someone in charge of municipal finances should know that 100% is their target. Not 80%.


I know people may think I’m nuts for flogging this issue, but there are two aspects to it, one of which is more important than the other:

1. Paying for promises
2. Good journalism

I’ll do the less important one first: good journalism. The issue is that I need to know how a journalist knows. They really aren’t pension experts, no matter how much they report on pensions. That said, they probably have sources — this is nothing that requires anonymity. Name your damn sources.

In some cases, I know it’s just a lazy repetition of something they’ve heard multiple times.

As for the first — well, some retirees right now are finding their benefits cut. It’s not just public pensions. The Teamsters/Central States pension situation is going to get really ugly this summer, and I wouldn’t be surprised if it became a big presidential election issue.

This is just the start. The peak of the boomers in retirement is still a decade off. If it’s bad now, imagine what will happen when those born in that peak year of 1957 start retiring?

The sooner people realize that 80% of the promise is not going to cut it, or that by targeting 80% they are implicitly saying they will cut the pensions in the future — the better we will all be.

I would rather more be saved now, as well as a moderating of expectations by all parties, so that we have less of a disaster later.

How this election year is going does not bode well for any of that.

But hey, I might be wrong.

I’m not wrong about 80%, though.

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