STUMP » Articles » The 80 Percent Funding End-of-Year Extravaganza!!!!!! » 28 December 2016, 05:10

Where Stu & MP spout off about everything.

The 80 Percent Funding End-of-Year Extravaganza!!!!!!  


28 December 2016, 05:10

Last year, I cried All I Want for Christmas is for the 80% Myth to DIE…ain’t it just the way, but I never did get my wish.

I also didn’t get socks or a tiara (and I didn’t get them this year, either).

But rather than have a tantrum as when I was a child, let’s turn it into a party! It’s time for some awards!

But first….


I have three referrers in particular who have been steady in linking my posts throughout the year:

  • Pension Tsunami by Jack Dean – Jack has been linking to my stuff before STUMP. Alas, my prior blogs are lost to all but the wayback machine, but Jack’s archives go back to May 18, 2005 – Sure, a lot of those old links no longer work, but you can at least read the headlines of a decade ago to see how the public pension problem developed to where it is now.

In addition to my referrers, I get people coming here from twitter and facebook – howdy y’all!

And now to the awards!


It gets a bit boring as a reporter on the public finance beat. At a certain point, “Experts say…” gets a bit tiresome.

What to do?

If you’re James Quintero, Think Local Liberty project and is director of the Center for Local Governance at the Texas Public Policy Foundation you beak out the thesaurus:

Many pension aficionados recommend that a system’s funded ratio, which is a measure of a plan’s assets as a share of its liabilities, remain at or above 80 percent to demonstrate that it is sound. But almost three-quarters of Texas’ plans have funded ratios below this red line. As a whole, the average funded ratio among all plans is also below 80 percent.

I prefer to consider myself a pension connoisseur.

“Ah yes, the 2000 vintage… we were pushing 120% then….”



So congrats to James Quintero for actually making me laugh about the 80% fundedness myth. I could definitely use the laugh.

This is Quintero’s second time appearing. If you make it a third time, Quintero, I’m really looking forward to seeing what your word choice will be.


Here’s a late entry to the list, courtesy of Jack Dean.

Douglas Albo referring to Morningstar:

Though CalPERS is only 76% funded for current retirement benefits, that’s actually better off than many other states which fall below 70% funded, which is the threshold for fiscally sound plans according to Morningstar. But obviously, any amount underfunded is still a shortfall and this is a problem that is not going away unless there is some dramatic government involvement since no one step at the state level is going to change the current trajectory for many plans.

To a certain extent, this is Morningstar’s own fault. I did some digging, and found this Morningstar report from 2013

From the document takeaways on the front page:

More than half of all states fall below Morningstar’s fiscally sound threshold of a 70% funded ratio

Tsk tsk.

I searched through the doc to see why 70% and above is considered “fiscally sound” by Morningstar, but I get the inkling, given where everybody ended up, that if they picked the more “popular” 80%, very few states would have passed that threshold.

What’s that, Dean Baker?

Fine, fine, noted. (Dean Baker’s 70% entry can be seen here in January 2015.)

But the point is, Morningstar really did pick that threshold (based on nothing, apparently), so it’s they who get into the Hall of Shame, not people who are accurately quoting them.


First, to Jack Humphreville for this breath of fresh air:

The City will say that a pension plan that has assets equal to 80% of its future pension obligations is in good shape. Baloney! Pension plans should aim to be 100% funded, especially in down markets. And in today’s bull market, where the Dow Jones Industrial Average is hitting record highs, the pension plan should be 120% funded so that it can withstand another bear market.

Well done, sir!

And this is an excellent point — In 2000, after the dot-com bull run, many public pensions were sitting at well above 100% funded.

We’ve had an even longer bull run in the Obama years, and I hear bitching about anemic returns. Beg pardon?

I barely see any plans above 100%. There are some interesting things afoot, which I’ll be looking into in 2017. We’ve already seen the discount rate getting adjusted for many, but I’m finding there is so much more in the liability valuation that has shown why funding ratios have stagnated, even in these boom times.

Jack Humpreville’s entire piece is very good – go read it.

The next is an organization, not an individual, but I don’t care. Huzzah to the Civic Federation:

According to the American Academy of Actuaries, pension plans should have a strategy in place to achieve 100% funding. Illinois’ State Actuary, which was installed in 2012, has consistently stated that 90% funding does not meet generally accepted actuarial principles.



Congrats to Keith Phaneuf, working in the same area I work in – Connecticut.

Here’s Keith’s FIFTH and SIXTH appearances on the Hall of Shame!

First,Phaneuf hooks in a partner in crime: Jacqueline Rabe Thomas and Keith Phaneuf, CT Mirror

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

NO WE DON’T!!!!! (see prior section)

And for time #6, Phaneuf is on his own:

Analysts typically cite 80 percent as a fiscally healthy ratio.

In my comment on time #5, Michael Bird beat me to bitching out Phanuef. At this point, I consider Phaneuf unteachable. Perhaps the American Academy of Actuaries can stir itself in DC and reach out and smack him. My hand is sort of tired.

Keith’s prior four appearances:

I don’t look forward to seeing Phaneuf’s name again next year, but looking at my list, I can count on it happening again.

I have multiple repeat offenders, but Phaneuf really takes the cake.


Back in May, I announced an “ambiguous” category so I didn’t have to throw away iffy references that I started coming across more often. Sometimes it was not clear to me that there was something wrong with the 80% threshold — in that, it was actually written into state law.

I came across such entries surrounding Michigan recently:

From a recent news item:

In September, MERS dropped the requirement that municipalities be 80 percent funded before switching to a defined contribution plan.

Similarly, from a Marquette, Michigan pension board:

The board’s goal is to raise that to 80 percent funded, Vogler said, a goal shared by pension systems around the state.

It’s an awful goal, but it sounds like yes, that’s the yardstick being used in Michigan, partly because it used to be enshrined in state law.

Another Michigan reference:

County Administrator Bud Norman says the pension is currently funded between 65 and 70 percent which is below the minimum of 80 percent.

Shame on Michigan for making 80% the minimum… but I guess it’s better than the de facto 0% minimum in some places.

Some more ambiguity:

Sean Whaley, Las Vegas Review Journal:

It was at 69.3 percent in fiscal year 2013, below the 70 percent that investment researcher Morningstar considers the threshold for fiscally sound funds. But it remains well below its best performance of being 85 percent fully funded in 2000.

That 85% was its best, in 2000, is plain pathetic. We did see where the Morningstar stuff came from above, so I guess it’s not all that ambiguous now. It was ambiguous to me at the time, but now I wonder if I need a new category: the Morningstar count.

Jesse Marx, the Desert Sun:

There’s debate over what constitutes a “healthy” plan, but many experts would put the minimum at 80 percent.

I guess there’s a debate, but not really. Those asserting anything less than 100% need to back it up. Usually 80% (or, as we’ve seen, 70%) is picked just because it sounds good.

You know what sounds good?


And my last ambiguous entry for the year is some analyst named Steven Frates:

Steven Frates, a municipal finance analyst, previously told CalCoastNews anything below 70 percent is a matter of acute concern. But, anything below 80 percent is not good, either.

Well, I wouldn’t go so far as to say below 70% is of acute concern. Depends on what the cash flow situation is like. I would want to see the overall trajectory, etc.


Here’s the stats as we come to the end of 2016:

Total entries (cumulative since October 2014): [some are on multiple times]

Hall of Shame: 128
Heroes List: 13
Ambiguous: 16

How many entries refer to 80% as “healthy”: 77
How many entries refer to 80% as “ideal”: 5

Link to the 80 Percent Funding Hall of Shame (and Heroes) Spreadsheet

All the 80% funding posts from 2016 (except this one):


And here is everybody else I hadn’t quoted yet.

Leo Kolivakis, who really should know better:

Typically any figure close to 80% is considered fine to pension actuaries who smooth things out over a long period.

Ken Siegel, Alderman of Nashua, NH:

Alderman Ken Siegel, Ward 9, described the goal of 100 percent funding as absurd, maintaining a more reasonable figure would be 85 percent.

Omaha World-Herald editorial:

Financial experts recommend that as a general rule, public-employee pension programs should be at least 80 percent funded.

Elizabeth Findell, Austin American-Statesman:

Financial standards generally consider pension systems healthy if their funding is about 80 percent or higher.

Michigan state treasury (maybe) or the article author, Beth LeBlanc:

Local governments across Michigan have paid for about 78% of their current long-term pension costs, close to the industry standard of 80%, according to the state treasury.

Nicole Hayden, The Times Herald:

Of the 732 local governments that have pension plans through MERS, 61 are half-funded or worse, while more than 500 are below the recommended 80 percent

World-Herald editorial:

Financial experts recommend that as a general rule, public-employee pension programs should be at least 80 percent funded.

Joseph Cranney, Naples Daily News:

With a healthy funding target of 80 percent, the $52 million pension for general employees is 77 percent fully funded.

Finally, guy you don’t want as a pension trustee – James Machado, PERAC commissioner:

“I’m not a big proponent of fully funding the system,” Machado said. “When the system is fully funded, I feel the pressure is off.” He believes an “80-85 percent” pension system “is a good position.”

Seriously, dude. Do you even listen to yourself?

Change “I’m not a big proponent of fully funding the system” to “I’m not a big proponent of paying people their full pension benefits.”



I used to think the myth would die, but I have a feeling this could be my longest-running feature…

…..maybe in the Trump Era a bunch of people who considered 80% “ideal” will turn around and think it catastrophic. Hell if I know. I’ve given up trying to make predictions on public policy.

But I reckon the 80% funding myth is going to be around for a while.

Happy End of 2016!

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