Moving the Pension Funding Goalposts: 60 Percent is the New 80 Percent
by meep
This is not my quarterly 80% fundedness update. This is driven by an incredibly stupid thing said by a politician (of whom I have little expectation) and by someone who really should know better.
And it was in multiple news stories.
KANSAS, I DON’T THINK WE’RE SAFE ANYMORE
Here is the first place I saw it:
So you can see where this is going.
TOPEKA — On paper, it sure looks like the state pension fund for teachers and other state and local government workers lost ground in 2016. After all, state lawmakers eliminated a nearly $100 million payment that was due to the pension fund.
But officials on Monday insisted that retirees — and state employees who someday hope to retire — have no reason to worry about their future pension checks.
“Our members should not worry about getting their retirement benefits,” Alan Conroy, executive director of the Kansas Public Employees Retirement System, told a legislative oversight committee Monday. “No retiree should worry about not getting their retirement benefit.”
Remember Conroy’s name. He’s the person who should know what he’s talking about.
But before I get to the stupid thing Conroy said, here’s the politician:
Sen. Laura Kelly, D-Topeka, noted that the system is now nearly 67 percent funded. That means if no more new money were put in, and no new employees were added to the system, the fund would have 67 percent of all the money it needs to pay the obligations it has incurred.
“That’s a safe zone, between 60 and 80 (percent),” Kelly said. “It’s an improvement over the past, so we’re going in the right direction.”
Okay, she’s right about it moving in the right direction. Huzzah.
Hell, she even got the meaning of the funded ratio right!
That’s kind of an achievement.
But here is something stupid from the person who should know better.
Conroy said any level below 60 percent generally is cause for alarm, but anything between 60 and 80 percent is considered acceptable, at least over the short term.
DEAR LORD.
NO IT’S NOT.
Yeah, I love that GIF.
80% isn’t “healthy”, and over 60% isn’t “safe”. What happens if you get another market downturn?
ANOTHER MENTION
So that was just the first story that caught my eye. Some people sent me other links, and my daily news search gave me some more. Most of them, though, were just an edit of the AP wire story below:
Kansas insists pension fund still stable amid concerns
Democratic state Sen. Laura Kelly said the retirement system is now nearly 67 percent funded. This means if no new money were put in and no new employees were added, the fund would have 67 percent of all the money it needs to pay the debts it has acquired.
“That’s a safe zone, between 60 and 80 (percent),” Kelly said. “It’s an improvement over the past, so we’re going in the right direction.”
“Safe zone”. Well, that’s a new one to me.
Jeez, I’m going to add another hall to my 80% Funding Hall of Shame.
And it has a different meaning in the case of Kansas: they’ve only been making 80% of ARC payments:
A SURE THING AGAINST A RISKY BET
Oh, and here’s some pension obligation bond goodness:
KPERS funding improves, but $9B in unfunded liability remains
The state will also have to repay a bond it issued in 2015 to help fund KPERS. So far, the bond has been a net gain to the state. The $1 billion investment is achieving a nearly 8 percent return compared to the 4.68 percent in bond interest the state will have to pay.
Hmmm. Was that a one-year return? Two-year? Long-term?
Kansas returns have only been near-8% for the last 5 years. The 10-year average was 6.2%. I looked up the since-2001 average return: it was 5.7%.
These aren’t good numbers. You can’t guarantee 8% returns. While what they’re getting, in general, is higher than 4.68%, it’s not much of an arbitrage.
Well, congrats, Kansas. You’ll be the next state I look at for my asset/liability/trend set of posts.
KANSAS WON’T BE THE ONLY ONE
Looking at the plan page in the Public Plans Database, I’m seeing all sorts of issues – such as never paying the ARC.
But there are plenty of 100% ARC players who are more in that 60 – 80% fundedness range after many years of good returns.
Take a look at this lovely graphic from the Reason Foundation:
Sorry that the 2016 view doesn’t last too long (it has to do with what I used to convert their video to an animated GIF), so here it is by itself:
I think you can see why the “80% is healthy!” goal mark is not very helpful for messaging right now… because most states aren’t there. Many more are in that “safe” 60% – 80% range… and there are too many that fall below even the 60%.
So I may need to reboot my Hall of Shame next year in light of the bogus 80% being replaced by an even-more bogus 60%.
But hey, y’all are Jonny-come-latelies. I already had noted goalpost-mover Dean Baker got ahead of the pack years ago:
But he has been supplanted by those pushing it down to 60%… and the ones saying that even pay-as-they-go isn’t all that bad.
So maybe Dean Baker isn’t so bad.
Related Posts
80% Fundedness: An Excellent Example and The Usual Disappointments
The End of an Era: Where are the 80% funding myths of yesteryear?
At the Half: Updating the 80 Percent Funding Hall of Shame
