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.