STUMP » Articles » Midyear 80% Funding Myth Update » 6 July 2016, 06:02

Where Stu & MP spout off about everything.

Midyear 80% Funding Myth Update  

by

6 July 2016, 06:02

Hey kids, what time is it?

Okay, that was a bit silly. But seriously, Morris Day and the Time have fun music.

But first, thanks to last week’s top linkers:

And welcome to my fellow actuary, Jean-Marc Fix, to the blogging world: Mr. Mortality.

Speaking of mortality, if you missed last week’s posts, I had some good news on mortality: childhood mortality waaaaay down in the past 200 years, and continues to improve at amazing rates, worldwide.

More happy news:

Enough happy talk.

And now to clear my records of those befouling the funding ratio waters.

PEOPLE WHO SHOULD KNOW BETTER

When I saw the next item…

yeah, just like that.

Let’s take a look at what a person responsible for pension funding has to say:

“At one time there was a concept that you fund the retirement pension liability to about 80 percent. That concept is changing,” City Manager Eric Levitt said in an interview. “We are currently having a strategy to get to 100 percent within between 20 and 30 years and are paying about a 3 percent increase (into the pension accounts) per year to attain that goal.”

I threw this into my “ambiguous” bucket. Levitt himself isn’t endorsing the 80% funding target, but is explaining that had been their… goal? Or perhaps just to excuse their underfunding policy in general.

But good lord, this is why the 80% funding myth needs to die.

Part of the problem is that the “deciders” are often people barely numerate to begin with. They hear 80% in relation to pensions in general, and slap it across the board: make only 80% of the “required” contribution, aim for 80% funding, think 80% replacement rate for final salary is going to be cheap to provide. Something.

If we can at least drum into their heads that 100% is the proper target, and push them off the 80%….

(and I will risk that they think 100% replacement rate is good.)

THE UNTEACHABLE

I get repeats. I’ve mentioned this before.

Hilary Russ makes my list for the third time:

When including local government contributions, the overall system appears somewhat better funded at 59.5 percent, which is still far below the baseline 80 percent level considered healthy.

Even uses the “healthy”.

The prior times Hilary made my list:

Karen Pierog of Reuters also repeats… wonder if Karen & Hilary work together.

But let me not beat up on Hilary.

There’s also Keith Phanuef back for a fourth time:

The state employees pension holds enough assets to cover 42 percent of its long-term obligations — roughly half of the 80 percent ratio analysts typically cite as healthy.

Just…. ugh.

I expect to see both him and Hilary on my list again.

AND SOME NEWBIES

At least, I didn’t recognize their names. My list is getting pretty long:

Here are the newbies:

Joseph N. DiStefano, Philly.com:

The plan was last near solvency (assets 80 percent of liabilities) in 1999, after borrowing $1 billion in an expensive bond issue. It’s now 45 percent.

Craig Douglas, Boston Business Journal:

According to a new report by the Public Employee Retirement Administration Commission, commonly known as PERAC, some 20 of the state’s 104 pension systems have fewer than $1 saved for every $2 owed to retirees. Dozens more are below the 70 percent funding threshold — considered healthy among pension experts. And all but one system, the town of Belmont, have failed over the past decade to generate the kind of investment returns needed to keep pace with their growing retiree obligations.

I left comments or emailed these people. I hope they don’t show as repeats.

But, once someone latches on to a numerical factoid, it’s difficult to make them let it go.

I’m pretty determined myself.


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