Lies, Damn Lies, and Pension Funding Levels

This is sad on so many levels. Lesson from Chester PA: Don't Count Assets You Don't Actually Have, Public Pension Plans.

Chester, Pennsylvania is a town of 33,000 people. It has pension liabilities of between $100 million and $500 million. I don't know how the bounds of uncertainty can be that bad, but there you go.

The town declared bankruptcy last week.

Here is the nutshell:

• Since 2013, Chester has not been able to make full contributions to its pension plans
• However, the unpaid portion had been booked as an asset to the funds in determining the funded ratio for the pension funds — last measured at 49%
• But if you removed the portion that was the receivables, the funded ratio was 3%

How can you book a liability that is 3% funded as being 49% funded without just admitting you are a liar? Apparently someone in Chester could do exactly that with a straight face.

As I said, I’ve never seen a public pension plan take credit for contributions that were never actually made. Yes, they were “required” contributions…. but they never made them, and they were never going to make them, were they?

By pretending those contributions were actually made, and using those amounts not actually made to give funded ratios to be higher than they actually were, retirees and employees were given a false impression of pension fund health.

Click thru, because Meep has a whole lot more of the details, and a lot more to say.