STUMP » Articles » CORRECTED - 80 Percent Funding Roundup: New Category Announced » 27 May 2016, 12:51

It looks like I’ve accumulated more entries in my 80% funding hall of shame, so let’s clear them! In addition, I’ve decided to start a new category for my tracking purposes: ambiguous.

But first, thanks for my many linkers:

• Wirepoints by Mark Glennon, and he has a post on the Chicago Laborers Fund ‘deal’
• Pension Tsunami by Jack Dean
• Wombat-socho at The Other McCain – have fun at the con!
• Someone reposted my Chicago post at “Newsblur”, which I’ve never seen before; yeah, I could say they’re ripping me off, but I don’t do ads [yes, Amazon Associates, and hey you can buy me a book. Hmmm, I need to clean up that list. Some of those have been on there for 16 years….]
• To whoever posted my Alabama pensions post to facebook – that got a lot of hits
• Thanks to my retweeters!

Sorry to the person who screwed up their tax info, I can’t help you with that. I hope you found the help you needed.

AMBIGUITY

So my new category, in addition to the Hall of Shame and Hall of Heroes is the Pit of Ambiguity.

The reason I’m doing this is that people have been sending me 80%-funding stories that didn’t really fit my hero/shamed ones dichotomy, and I do want to keep track of how often the damn 80% is quoted.

Also, I’m not sure who to blame for this one:

From a ratings agency perspective, anything above 80 percent is deemed to be essentially fully funded,” said Jay Wenger of Susquehanna Group Advisors. “Below that, you start to get marks against you in the ratings process.”

I just don’t know if that’s true or not.

If the bond raters are treating >80% fundedness as fully-funded, then shame on them.

If they don’t, then shame on Wenger for shifting it to the rates.

But I wouldn’t be surprised if he was right. I wouldn’t be surprised if that used to be true, and the raters have changed in light of recent experience. That’s something for me to look into later.

THE BEAT GOES ON

But here comes the normal round. I have no new heroes, only people to shame.

Abigail Wilson, Hays post:

Many researchers say 80 percent is a healthy funding level.

[CORRECTION:]This image from Reboot Illinois: (I mistakenly “credited” the Illinois Policy Institute)

Editorial writers of the Rockford Register Star:

An 80 percent funding level is considered healthy for a pension system.

Bartel Associates, supposedly quoting the GAO:

However, Bartel also pointed out that the U.S. Government Accountability Office cautions that a funding ratio below 80 percent may be cause for concern.

This is what the GAO had written:

Many experts consider a funded ratio (actuarial value of assets divided by actuarial accrued liabilities) of about 80 percent or better to be sound for government pensions.

MmmmHmmm. The old “some say” crap.

Jacqueline Rabe Thomas, CT Mirror:

Actuaries typically cite 80 percent as a fiscally healthy level, which analysts projected the state should reach by 2027.

NO WE DON’T
(hold that thought)

Jesse Marx, the Desert Sun:

There is reasonable disagreement over what constitutes a healthy plan, but most experts put the figure at around 80 percent.

Nice to supposedly “write to the controversy”, but that’s the wrong damn point.

and the subsequent Desert Sun editorial:

The Government Accountability Office says 80 percent funded constitutes a healthy plan.

Yup, the GAO thing again. Serves them right for using the “some say” trope.

STATS UPDATE

So as of today, having started in October 2014, I’m up to 97 in my Hall of Shame.

Of those 97, over half (56) refer to the >80% as being a measure of “health”.

AN ACTUARY WRITES

What do the actuaries say?

Here’s an actuary:

Letters: Pension boost is irresponsible

The Advocate’s recent editorials recommending against the pension cost-of-living adjustment for retirees in the state retirement systems are exactly on target. The Louisiana House and Senate passed this bill with barely any discussion, which will only add to the poor funding status of these plans. Each of the retirement systems are about 60 percent funded, which translates to $20 billion in debt. In the private sector, a funded percentage below 80 percent is serious cause for concern, and below 60 percent represents severely questionable longevity.

So, instead of paying for the full cost of the COLA adjustment now ($385 million), the Legislature has kicked the funding can down the road. Signing this bill into law will increase retiree benefits now but at the expense of jeopardizing the full benefits for those same retirees 10 to 15 years in the future. Moreover, active employees should be very concerned that funds spent on current retirees will deplete the assets so that funds may not be available to pay the promised benefits when they retire.

This bill does not do a favor to retirees, or to the retirement systems in general. A responsible approach would be to increase the funding of these plans.

Lynn Pyke

actuary

New Orleans

Pyke is correct. Falling below 80% is flagged as a cause of concern. Being above 80% doesn’t mean things are all right. Note the emphasis.

And of course, this is also what we say:

The health of defined-benefit pension plans is a key issue to the tens of millions of Americans who are receiving or expecting to collect pension benefits. Some have said that the level of funding – specifically an 80% funded level – should be used as a general benchmark to determine whether pension plans are financially healthy. In reality, however, no single level of funding distinguishes a healthy plan from an unhealthy plan. In fact, plans should have as their objective accumulating assets equal to 100% of relevant pension obligations.

The reason I’m attacking the 80% crap is because it’s misleading. It moves the numerical anchor down to 80%, instead of keeping it at 100%, which is the proper target.

It would be like a doctor saying that having your blood pressure in prehypertension range was a sign of health, because you hadn’t crossed the threshold into outright hypertension.

Just because being below 80% is bad, doesn’t make being above it good.