Morningstar Misdirection

The Morning Star is a valuable tool to help sailors navigate rough waters but it doesn’t help much beyond providing information.  So it is with the Morningstar, Inc. report on the ‘The State of State Pension Plans’ which helpfully culls data from the actuarial reports of all 50 states.  But then it draws conclusions for you that, if heeded, will lead you right into eye of the tsunami.  For example:

Despite admitting up that “the inner workings of pensions remain mired in foggy opacity, due to a combination of their complexity and sheer number, as well as a lack of transparency precipitated by weak disclosure requirements” (all true) they take this phony data and conclude:

  • “we found the fiscal health of state pension plans varies drastically with some states having exceptionally strong plans”: though no state had a funded ratio of over 100%, with Wisconsin at 99.8% being the highest, they choose to define an underfunded plan as being ‘exceptionally strong’.
  • “Pension disclosure is currently less than ideal.”  No ERISA, no 5500 requirement, actuarial assumptions chosen by state legislatures, actuaries hired by politicians who can’t handle the truth.  However they are technically right since ‘imbroglio’ would fall into the ‘less than ideal’ category.
  • “21 states fall under the Morningstar’s fiscally sound threshold of a 70% funded ratio.” Even though the American Academy of Actuaries told everyone in no uncertain terms that the logical answer to what is a soundly funded plan (100%) still maintains despite political math that seeks to convince the hoi polloi otherwise.  It makes you wonder if when the average funded ratio hits 5% some ratings agency will claim 6% funded as a ‘fiscally sound threshold’.

Read the report but be wary of where it leads you.

14 responses to this post.

  1. Posted by Javagold on November 30, 2012 at 1:09 pm

    the pensions are NOT there, its all a mirage…….be prepared for when the public leeches finally understand ITS ALL GONE !!!!


    • Posted by Tough Love on November 30, 2012 at 3:21 pm

      While I’m certainly a strong advocate for pension reform (freezing or at last halving the pension accrual rate for CURRENT workers), actual payout reductions to retirees will be few and far between for quite some time.

      The REAL driver of pension reform has to come by educating the younger less-service “actives” that the mathematics makes it IMPOSSIBLE for these rich pensions to be their for THEM and that THEIR contributions will simply be going out the door to support those that retired earlier, leaving little for them. THEY must join with Taxpayers in demanding MATERIAL pension reform. A bird in the hand (a reasonable 401K …in YOUR name) is better than large (but bankrupt) DB’s in the bush.

      Part of this is convincing them to stomach the blow-back from those already ready retired and the more senior near-retirees hoping to lock-in their pot of gold.


    • Posted by muni-man on November 30, 2012 at 4:37 pm

      But don’t you know publics are safe because ‘taxpayers are on the hook’ for these pensions – they really, truly are! (lol)


      • Posted by Al Moncrief on December 1, 2012 at 10:09 pm

        Hi Muni, the Colorado Court of Appeals agrees with your perspective on this. In their recent decision the court held: “We consider McPhail and Bills dispositive (indisputably bringing to a conclusion a legal controversy) of whether plaintiffs here have a contractual right to a particular COLA.” In the cases McPhail and Bills, the Colorado Supreme Court “found a contractual right based on members’ provision of services and contributions to the retirement fund.”

        The Colorado Court of Appeals also reversed the Denver District Court’s summary judgment on the plaintiff’s “Takings Clause claim.” On page 36 of its decision, the Colorado Court of Appeals restores the plaintiff’s Takings Clause claim and cites the case Lynch: “contract rights can constitute property interests protected by the Takings Clause.”


        • Posted by Tough Love on December 1, 2012 at 11:50 pm

          And you thought muni-man was serious ???


          • Posted by Al Moncrief on December 2, 2012 at 2:44 pm

            Hi TL, no, I was just using his comment as an opportunity to continue getting the word out about the Colorado ruling. It is not a welcome ruling for the media (only one biased article in the Denver Post), or for the political establishment.

            Hey TL, did you notice that Pennsylvania’s Gov. is going to give the Monahan “trim rate of future accruals” idea a shot?


            “On November 26, 2012, Pennsylvania’s Governor released a proposal for pension reform in the state. He proposes that the state honor its current public pension debts to retirees, (as well as accrued pension benefits of current employees.) The Governor proposes that the rate at which current employees accrue public pension benefits going forward be reduced. This is essentially a proposal made by Professor Amy Monahan of the University of Minnesota School of Law.

            The Governor’s proposal is admirable in that it does not attempt to deny the state’s public pension debt. Denial of the state’s public pension debt is the immoral and illegal approach that was taken by the Colorado PERA Board of Trustees in SB 10-001, adopted at the 2010 session of the Colorado General Assembly.”


          • Posted by Tough Love on December 2, 2012 at 7:19 pm

            Al, If he fully HALVES the accrual rate, that’s not a bad start.

            Even HALVING the accrual rate (unless in addition, both COLAs are eliminated and full retirement ages are raised to 65) only get the richness of their Public Sector Pension Plans down to the level of the better Private Sector Plans.

            Public Sector workers DO NOT deserve greater pensions and better benefits than Private Sector taxpayers.

  2. Posted by Anonymous on November 30, 2012 at 3:30 pm

    John, isnt anybody worried about the current state of the Federal Government. It would seem pensions may be the least of our worries. I guess people want to keep their heads buried in the sand when it comes to the Federal Governmen


    • It may have something to do with the federal government being able to print money. Pension schemes can (and do) collapse leaving people expecting $1,000 per month for life looking to get that from other sources. But however big the hole at the federal level the perception is that it can be papered overl.

      And as to this fiscal cliff, I’m still waiting for someone trustworthy to define it for me.


  3. Posted by Jeff on November 30, 2012 at 7:47 pm

    I am one of those people who think that Obama wants us to go over the fiscal cliff. It will mean MASSIVE tax hikes, MASSIVE cuts to defense spending, or to put it another way, a “Complete transformation of our economy>”

    Could he wish for a better scenario?


  4. Posted by Thomas Renna on December 1, 2012 at 1:42 pm

    read this John , i wonder what UCCATerer will say


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