Underfunded pensions are a huge issue these days. MaryJo Webster of the St. Paul Pioneer Press spent about six months studying and investigating public pensions in Minnesota. Her work paid off with a great explanatory piece as part of the paper’s on-going series. Today, she is sharing tips to help you navigate through your state’s plans with ease.
The first step is determining the financial health of the pension plans, MaryJo says. This is when the terms “funded ratio,” “contribution deficiency” and “contribution sufficiency” kick in.
The funded ratio indicates the percentage of liabilities covered by assets, MaryJo says. Most funds are in the 70 to 75 percent range, she says. “If the plan is underfunded, that also means there is an unfunded liability,” she says.
The contribution deficiency/sufficiency will tell you if contributions cover obligations and can pay down the unfunded liability, she says. “Most experts will tell you that having some unfunded liability is OK, as long as the fund is actively paying it down each year,” MaryJo says. “But having a contribution deficiency means the fund is not headed in the right direction.”
The numbers could mean current employees have to pay some of the benefit costs for the current retirees, or that the fund is using assets that generate investment returns, MaryJo says. Or it can be both.
“The general thinking is that if a deficiency continues unchecked, eventually the fund would dry up its assets, meaning they wouldn’t benefit from investment returns, and the fund would go broke,” she says.
MaryJo used data from fiscal year-end valuation reports that pension plans release, she says. In Minnesota, the state’s legislative pension commission puts the key numbers into a series of spreadsheets. MaryJo says she pulled data from those spreadsheets to create her own. She says reporters should find out if one central organization collects and organizes the valuation reports.
But understanding the numbers is different than explaining them to readers. MaryJo says she had to wade through the jargon while not oversimplifying the information. She also wrote some paragraphs to explain basic principles about how the pensions work.
“I worked extremely hard to ensure that the story was written in a way that even someone with zero knowledge of public pensions would be able to fully understand what they were reading,” she says. “This meant that the story ended up being significantly longer, but my editor was OK with that because he agreed that public education on this matter was nearly as important as sharing the news about the financial health of the state’s pension funds.”
MaryJo warns that media coverage of pension plans have made some public pension plans defensive and reluctant to talk. She says one PR person even asked her which anti-public pension organization had set her up to do the story.
“It took quite a bit of effort and time to convince that executive director that I wasn’t out for blood,” she says. “Since then, the executive directors have flat out told me that they would prefer I go away, but that they are grateful that I’m playing fair and asking good questions.“
For more help in covering public pensions, please see the Reynolds Center’s self-guided training with award-winner Craig Harris of The Arizona Republic: Investigating Public Pensions.