Friday, July 12, 2024
Hawai'i Free Press

Current Articles | Archives

Friday, January 17, 2014
Should ERS Project 8% Rate of Return?
By NCPA @ 1:41 PM :: 4215 Views :: Energy, Hawaii State Government

What Does It Mean When a Pension Plan Is Funded?

NCPA January 17, 2014

Accounting rules and disclosures cloud the amount of actual funding that a pension plan has, says Andrew Biggs, a resident scholar at the American Enterprise Institute.

  • Most public employees have defined benefit pension plans, which promise a fixed monthly retirement benefit.
  • These plans have a number of different investments, from stocks and bonds to hedge funds.
  • Where these plans differ from a traditional 401(k)-type plan is in the risk: a public defined benefit plan's risk is borne by governments (and therefore taxpayers).

When people refer to pension funding, the amount of "funding" is comprised of the plan's actual asset value today and its expected earnings in the future.

  • To calculate future funding, plans use an expected return rate (this is usually around 8 percent).
  • That return is not guaranteed, it is only an estimate of what might happen in the future.
  • In fact, a recent survey of eight investment consultants estimated that a typical public plan portfolio would yield only a 6 percent return, rather than 8 percent, over the next 15 years.

Today, riskier investments appear to improve public pension funding. Current accounting rules mean that riskier investments are given higher expected rates of return, so if a plan takes on more risk, it is considered "better funded" than a less risky plan (because that higher return rate yields a higher funding level).

As long as pension assets are considered "funded" based on the expectation of high returns, Americans will not have a true sense of what a "fully funded" plan actually is.

Using a fair market valuation approach would change this practice and would keep plans from being called "fully funded" simply based on risk levels. The approach, which has been endorsed by the Congressional Budget Office and the Federal Reserve, would calculate funding status based on the assumption that the plan invested only in safe assets.

Source: Andrew G. Biggs, "When It Comes to Public Pensions, There's Funding and Then There's 'Funding'," American Enterprise Institute, January 15, 2014.

High Risk, Low Return Investments: Tax Credit Scammers Find a New Home in HSDC 

Links

TEXT "follow HawaiiFreePress" to 40404

Register to Vote

2aHawaii

Aloha Pregnancy Care Center

AntiPlanner

Antonio Gramsci Reading List

A Place for Women in Waipio

Ballotpedia Hawaii

Broken Trust

Build More Hawaiian Homes Working Group

Christian Homeschoolers of Hawaii

Cliff Slater's Second Opinion

DVids Hawaii

FIRE

Fix Oahu!

Frontline: The Fixers

Genetic Literacy Project

Grassroot Institute

Habele.org

Hawaii Aquarium Fish Report

Hawaii Aviation Preservation Society

Hawaii Catholic TV

Hawaii Christian Coalition

Hawaii Cigar Association

Hawaii ConCon Info

Hawaii Debt Clock

Hawaii Defense Foundation

Hawaii Family Forum

Hawaii Farmers and Ranchers United

Hawaii Farmer's Daughter

Hawaii Federation of Republican Women

Hawaii History Blog

Hawaii Jihadi Trial

Hawaii Legal News

Hawaii Legal Short-Term Rental Alliance

Hawaii Matters

Hawaii Military History

Hawaii's Partnership for Appropriate & Compassionate Care

Hawaii Public Charter School Network

Hawaii Rifle Association

Hawaii Shippers Council

Hawaii Together

HiFiCo

Hiram Fong Papers

Homeschool Legal Defense Hawaii

Honolulu Navy League

Honolulu Traffic

House Minority Blog

Imua TMT

Inouye-Kwock, NYT 1992

Inside the Nature Conservancy

Inverse Condemnation

July 4 in Hawaii

Land and Power in Hawaii

Lessons in Firearm Education

Lingle Years

Managed Care Matters -- Hawaii

MentalIllnessPolicy.org

Missile Defense Advocacy

MIS Veterans Hawaii

NAMI Hawaii

Natatorium.org

National Parents Org Hawaii

NFIB Hawaii News

NRA-ILA Hawaii

Obookiah

OHA Lies

Opt Out Today

Patients Rights Council Hawaii

Practical Policy Institute of Hawaii

Pritchett Cartoons

Pro-GMO Hawaii

RailRipoff.com

Rental by Owner Awareness Assn

Research Institute for Hawaii USA

Rick Hamada Show

RJ Rummel

School Choice in Hawaii

SenatorFong.com

Talking Tax

Tax Foundation of Hawaii

The Real Hanabusa

Time Out Honolulu

Trustee Akina KWO Columns

Waagey.org

West Maui Taxpayers Association

What Natalie Thinks

Whole Life Hawaii