Posts Tagged ‘morningstar’

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?

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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:

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Pension Crisis: Private vs. Public Approach

You really need to be a pension actuary to grasp the full scope of the public pension tsunami about to strike but, even to civilians, the undertow is palpable – so they react.

In the private sector we have Morningstar, Inc., a leading provider of independent investment research, today publishing a  report, “The State of State Pension Plans: A Deep Dive into Shortfalls and Surpluses,” analyzing current data for pension plans administered by all 50 states.  According to an article in Yahoo Finance:

“Our analysis of the fiscal health of state pension plan systems across the country found that creditworthiness varies greatly and is heavily dependent on the funded ratio and the unfunded liability per capita—we look at both key metrics to evaluate each state’s system. We find the UAAL metric useful because it represents the burden on residents, though it isn’t widely used in the industry as an evaluation tool,” said Rachel Barkley, municipal credit analyst for Morningstar. “Not only do state pension plan systems represent the state’s financial obligations, but they are often structured as umbrella plans that also cover employees in the state’s local government bodies. Because pension liabilities represent significant long-term obligations for government entities, pensions are an important element in determining a municipal entity’s credit quality.”

Jeff Westergaard, Morningstar’s director of municipal analytics, added, “We’ve heard much discourse on the subject of pensions over the last few years, resulting in more confusion than clarity on how to view this important area of municipal finance. Our hope is that Morningstar’s analysis will help cut through the clutter and offer logical, clear analysis for investors to understand each state’s situation and the broader implications of their pension system’s financial status.”

Yes it’s a crisis and this private company takes it seriously and has undertaken a project to gather data and educate stakeholders with the goal of seeking solutions.  Contrast that to the public sector where coincidentally the state which Morningstar said has the weakest-funded system, with a 43.4 percent funded ratio and a liability of $6,505 per resident recently came up with their own initiative:

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