Time for a round-up around busting my favorite myth: 80% Funding of Pensions is Saintly!
LET OUR HEROES SHINE!
This isn’t a new hero, but kudos nonetheless: thanks to Robert Fellner, Director of Transparency Research at the Nevada Policy Research Institute, for writing to the Wall Street Journal:
Nevada Leads on Public-Sector Pension Yield
Nevada PERS’s funded ratio is far short of the 100% target that the American Academy of Actuaries recommends.
Kudos to Steve Edmundson’s low-cost investment approach that has helped the Nevada Public Employees’ Retirement System outperform its peers (“$35 Billion to Manage? Do Nothing,” page one, Oct. 20). But exclusively focusing on investments overlooks PERS’s ultimate objective: to have enough money to make good on its promises. The system’s funded ratio is far short of the 100% target that the American Academy of Actuaries recommends.
Because U.S. public pensions discount liabilities by assumed investment returns (for PERS it is 8%), anything less than that creates a funding shortfall. Consequently, PERS has fallen further into debt over the past decade, despite outperforming peers with a 6.2% annualized investment return. Pension systems in the private sector and the federal government use discount rates that reflect the strength of the promise made to retirees who expect to get paid 100% of the time and not just during periods of strong investment returns. The PERS board should follow suit. Alternatively, the legislature could create a new PERS tier—similar to the reforms in neighboring Arizona and Utah—that would fund members’ promised benefits with the same level of certainty as their expectation of receiving them. While this system would still benefit from above-average investment returns, it wouldn’t depend on them, which is far too great a burden to impose on any investment manager, no matter how talented.
Fellner last appeared in this post.
OOOH SPOOKY AMBIGUITY
This is my least favorite list, because I don’t know what to do with this stuff. It’s definitely not hero material, but it’s not necessarily bad.
The ERF calculates that it can cover the cost of 80 percent of its liabilities today. That’s better than many public pensions. Funds that dip below the 80 percent threshold are generally considered to be in danger.
Well, kind of. It’s not exactly wrong, but it’s not exactly right, either.
Decreasing funding ratios is definitely not a good sign.
CTA staff are unhappy with the underfunding of their pension and are calling for the union to increase funding until the pension is 80 percent funded. That’s the level the federal government says is needed for retirement systems to be healthy.
Well, kind of.
For private pensions. This ain’t a private pension.
But the union really needs to shoot for 100% funding, not 80% as the target.
At 85.4 percent funded, it’s well above the 80 percent threshold that the federal Government Accountability Office uses to delineate healthy plans from troubled plans.
Well, that’s not exactly true, either. Though it’s the GAO’s own fault that they used the ‘some say’ formulation:
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.
Given the GAO never sourced that statement, they’ve got to own up to the error.
WHAT ARE SAINTS WITHOUT SINNERS
Here come our new entries to the Hall of Shame.
“Any pension fund with 80 or 90 percent of its assets in hand is going to be in extremely healthy shape,” Bury said.
Ideally, Havasu’s PSPRS would be 80 percent funded – current funding sits just over 44 percent for both agencies, officials reported.
IDEALLY IT WOULD BE FULLY FUNDED
Ideally, pension plans should be funded to cover at least 80 percent of its long-term projected liabilities, but VRS is still trying to overcome big investment losses in the recession and consistent under-funding by the General Assembly of the contribution rates its board has said it requires.
What’s with all this “Ideally” crap that is infesting these people?
Perfect day for a litany to ask for help for exorcising this awful myth.
Number of Hall of Shame entries: 115
Hall of Heroes: 11
Number calling 80% “healthy”: 72
Number calling 80% “ideal”: 5
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