Who knew? 80% target for pension funds just an urban legend
January 10th, 2012 at 6:00 am by Ted Nesi under Nesi's Notes, On the Main Site
All through Rhode Island’s pension debate, a generally accepted idea was that experts agree public pension systems should be at least 80% funded to be considered healthy. I’ve said so at least four times. The Projo’s Mike Stanton and John Kostrzewa both said so recently. Treasurer Gina Raimondo made that the magic level where COLAs come back.
The only problem? The idea that experts agree on 80% is, apparently, an urban legend.
That surprising revelation comes from Governing magazine’s Girard Miller, a veteran pension analyst and a former fellow of the National Academy of Public Administration:
No panel of experts ever made such a pronouncement. No reputable and objective expert that I can find has ever been quoted as saying this. What we have here is a classic myth. People refer to one report or another to substantiate their claim that some presumed experts actually made this assertion (including a GAO report and a Pew Center report that both cite unidentified experts), but nobody actually names these alleged “sources.” Like UFOs, these “experts” are always unidentified. That’s because they don’t actually exist. They can’t exist, because the pension math and 80 years of data from capital markets history just don’t support these unsubstantiated claims.
With only one rare and fleeting exception (which occurs at the very bottom of a business cycle, similar to the green flash in a tropical sunset), 80 percent funding is not a sufficient, sound or healthy funding level for a pension fund.
Miller’s lengthy explanation of his reasoning is well worth a read. Rhode Island’s pension system was 48% funded before the new law passed; the state’s actuaries project it will reach 80% funded around 2031 and 100% by 2036.
The 80% talking point is one of 12 pension “half-truths” Miller debunks in his column. Others include the idea that risk-free Treasury rates should be used to calculate pension liabilities and that long-term investment earnings in the past are a guide to what the pension fund will achieve going forward.
Tags: fact check, gina raimondo, girard miller, pensions, providence financial crisis, raimondo-chafee
Nesi's Notes covers politics and the economy in and around Rhode Island for WPRI.com. (Twitter: 
You mean the Projo lied? No, never…….
No, Ms. Raimondo did. COURT!
A very in-depth, myth-busting piece. But while the 80% funding target is an “urban legend”, the author states the actual target should be 125%! Yikes.
I think Tom Sgouros Jr. has questioned this “rule” for a long time in his writing.
Who knew?
I did. And so did anyone who read my article in the Nov. 4 Providence Journal (third column):
http://digital.olivesoftware.com/Repository/ml.asp?Ref=VFBKLzIwMTEvMTEvMDYjQXIwMTQwNQ%3D%3D&Mode=Gif&Locale=english-skin-custom
Indeed you did. You’d better send a memo, though, because your colleagues are still writing it (as did Bloomberg today).
You know what Churchill said…
Well played!
[...] Who knew? 80% target for pension funds just an urban legend posted January 10, 2012 by adminterry under Pension Funds 0 Who knew? 80% target for pension funds just an urban legend With only one rare and fleeting exception (which occurs at the very bottom of a business cycle, similar to the green flash in a tropical sunset), 80 percent funding is not a sufficient, sound or healthy funding level for a pension fund. … Read more on WPRI-TV 12 (blog) [...]
I used to go to meetings in the mid 80′s to talk about this but it fell on deaf ears. Talking about present value, etc caused everybody to fall asleepI realized that most local officials are lawyers with mediocre practices, retired or active teachers/police/fire, or mothers with kids in schools. The lawyers want all the real estate, divorce, DUI, etc business from teachers and public safety(the largest employment group in RI), the retirees just want to protect their own, and the moms were just pawns of the PTA). They all want to get their family government jobs so they will give away the store knowing they will be long gone when the bill is due. The working person with a private sector job does not have the time or endurance to outlast the “townies” so gets rolled.
Wow add it to Gina (Truth in Numbers) other lies. Not including contributions from new employees and Average age of death 85(87). Figures don’t lie, but Liars figure.
The 80 pct figure is not based entirely on financial-stability considerations. It also reflects political considerations. When plans are more fully funded, it becomes a justification for benefit increases.
Urban legends make good political theater but will be hard for the state to defend in court.