The Mystique of the 80% Funding Threshold

Experts say, “A public pension fund is deemed healthy if it is 80 percent funded.”

Connecticut Governor Dannell Malloy has made it his goal: “What I actually aspire to is getting to an 80 percent funding as rapidly as we can and the fact that we can do that and save the taxpayers $6 billion is pretty important.”

But the questions are who are the “experts” and why 80 percent?

Status of States Making Pension Payments

A public pension plan’s annual required contribution, or ARC, reflects the amount a state (or locality) needs to set aside to fund benefits accrued in the current period (the normal cost) plus the amount needed to retire the plan’s unfunded liability over the plan’s funding period.

Addressing Media Misconceptions about Public-Sector Pensions and Bankruptcy

Given last week’s release of a new study by Joshua Rauh and Robert Novy-Marx and how several media outlets are promoting the assertions without providing context that their work is grounded in economic theory versus public finance, it seems appropriate to reprint this February 2011 article from Government Finance Review by Ronald D. Picur and Lance J. Weiss:

“Everyone who pays attention to the news has noticed the drumbeat of reports urgently warning that the public pension system is perched on the brink of disaster and that it will soon collapse, bringing a number of state and local governments down with it. These stories are based on questionable research from self-proclaimed experts in public finance, and their predictions have created misconceptions about the health and future of the public-sector pension system.”