The State of Those Who ‘Study’ Public Pension Plans

Morningstar, Inc. released a report* evaluating the fiscal health of 25 city pension plans finding that Washington, DC had the strongest funded plan and Chicago the weakest.

True enough.  Based on the latest valuation reports available to them Morningstar put Washington, DC at number 1 for fiscal health with a funded ratio of 104.9% and Chicago at number 25 with a funded ratio of 35.2%.  There’s your headline.  Nobody cares who was number 2 on that list.  Or do they?

Detroit with a funded ratio of 91.4% supposedly had the healthiest city plan in the nation after Washington DC.  The same Detroit that is now claiming a $3.5 billion pension liability and gearing up to offer retirees sixteen cents on the dollar.

Morningstar didn’t study bubkis.  They pulled off dodgy numbers from actuarial reports designed to mislead anyone without the wherewithal or inclination to think.

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* The full report was only available to Morningstar subscribers or those who provided an email address (which I did) to get the details.

2 responses to this post.

  1. Posted by Tough Love on November 13, 2013 at 5:03 pm

    If I recall correctly, one of the groups that regularly studies Public Sector pension funding ratios re-stated the State’s ratios assuming a more realistic discount rate for Plan liabilities. I seem to recall the average rate for all states combined was about 39%….. but granted, they may have used VERY conservative long-term treasuries as their rate.

    It would be informative to see what such average funding ratios would be using 4%, 5%, 6%,and 7% for the discount rate..,. along with market valuation of assets and payoff of current unfunded liabilities over 5 years.

    Reply

    • Posted by Tough Love on November 13, 2013 at 5:21 pm

      I meant payoff of current unfunded liabilities over 15 years (roughly the average future working careers of current workers)

      Reply

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