The State Pension System is not responsibly funded

Or so says the Public Employee Retirement Administration Commission.

I read with interest the most recent memo from PERAC’s Actuarial Advisory Committee which had the following citation:

We believe that maintaining a funding target of 100% is the desired goal. If the plan sponsor sets a goal of 100% funded and attains a funded ratio of 80%, that is not a bad result. In fact, the 2009 State of the Pension System published by PERAC stated: “ . . . public sector experts, union officials, and advocates believe, according to the GAO, that 80% is a responsible funded ratio for public pension systems”.

Working backwards, the 2009 State of the Pension System document states the following:

In this context, perspective can be further gleaned from an observation that “…public sector experts, union officials and advocates believe, according to the GAO, that 80% is a responsible funded ratio for public pension systems.”

The above quote is unsourced and does not show up in a Google search anywhere. That section of the report deals with information from a 2006 Wisconsin Legislature study on pensions, but I can’t seem to find any similar mention.

However, there is a GAO report that states, in a footnote, that:

A funded ratio of 80 percent or more is within the range that many public sector experts, union officials, and advocates view as a healthy pension system.

I’d point out that the above progression demonstrates that a footnote referring to the opinion of “many” experts and advocates appears to be transformed through the magic of multiple citation to a consensus opinion endorsed by the GAO.

More importantly, if, for the sake of discussion, we accept the premise that the 80% threshold is the right measure (and I don’t), then how do we deal with the fact that we are now only 62.7% funded, a funding level that was last seen in the mid-90s, many billions of dollars of payments ago.

The January 1, 2009 valuation was just released by PERAC and it shows a shocking $10 billion jump in our unfunded liability, which is now at $22.1 billion. To be fair, the fund has certainly recovered somewhat in 2009, but I’d note that 1Q 2009 was no picnic and that our use of actuarial smoothing (which I support) means that we still have losses from 2008 that aren’t figured into the funding figure yet.