The Pew Center released a report comparing the pension and OPEB funded status of 61 of the nation’s largest cities in which they continue to insist that 80% funding is fine regardless of what the American Academy of Actuaries might put in an issue brief.
However, in doing research on the study’s numbers, I came across what may be the most outrageous definition of actuarial soundness extant.
According to the American Academy of Actuaries’ Code of Professional Conduct:
Laws may also impose obligations upon an Actuary. Where requirements of Law conflict with the Code, the requirements of Law shall take precedence.
So if some yokels from West Virginia want to define a trust with no money in it as actuarially sound then the actuarial profession must defer to their ‘wisdom’.
I bring up yokels from West Virginia for a reason. The Pew study listed Charleston, WV with a funded ratio of 24% as the poorest funded big city pension. I got curious so I found the latest city audit, reviewed the portions having to do with pensions, and found that Pew was wrong.
Charleston has two city plans, one for Police and one for Fire Personnel. Their funded ratios don’t total 24% combined. As of 7/1/11 Police was at 8.00% and Fire was at 5.79%.
To try and solve their problem Charleston has instituted an Insurance Premium Surcharge Tax to bring in about $3.3 million that they add to the $8.8 million the city contributes and the $1.4 million public workers contribute to barely cover $12.3 million going out to retirees annually. It’s classic pay-go with a $20 million buffer but to keep the hoi polloi content in their ignorance they came up with their own definitions of a funding method and actuarial soundness (from the top of the second page of the audit excerpts):
Under the funding methodology for the Conservation Method of financing, the fund’s market value of assets is projected to be greater than zero for all plan years prior to the end of the 15-year projection period. Accordingly, this contribution methodology satisfies the minimum standard for actuarial soundness.
In whose mind?