Is There A Correlation?

Who needs cellular tracking when you have United Van Lines? The U.S.’s largest moving company keeps track of moving patterns and produces the results in an annual survey each January called the National Movers Study. Anyone who keeps up on the news will have a general idea of where people are going to and leaving from, and for a variety of reasons, but this study lays it all out there for everyone to see. For instance, is it surprising to read that Idaho led the country this year in inbound migration given some of the issues facing their neighbors to the West?

I got excited for a moment when I read that New Jersey was ranked only 48th until I realized that Alaska and Hawaii were not included in the study. Vermont wasn’t included either because of the small sample size, and they were replaced by the District of Columbia. So, NJ is in fact last in this category. Oh, it is good to be king!

Because I am always focused on pensions and pension-related issues, I began to wonder if there might be a correlation between the funded status of each state’s public pension system and their rank in the inbound/outbound tables. The funded status data that I was able to gather is through December 31, 2018. There does seem to be a pattern, but it may just be coincidental. For instance, the top 10 inbound destinations had an average funded ratio of 52.9% while the bottom 10 (includes #39 Maryland) had an average funded ratio of just 41.6%. If you eliminate from each data set one state that seems not to belong (NY at 60% from the outbound list and SC at 34% from the inbound list) you get a difference that grows to 15.4% (55% versus 39.6%).

In reality, how many citizens are staying up on pension deficits and the impact that those might have on current and future tax policy? Then again, they may have already been feeling the effects of higher taxes (sales, income, property, etc.) from escalating contribution rates in places like NJ, CT, IL, etc. As you know, I am a huge fan of DB pension systems, but that doesn’t mean that I don’t think that there shouldn’t be changes in how they are managed on a day-to-day basis, especially when it comes to asset allocation decisions. By focusing more attention on the plan’s promise (liabilities) to their participants, asset allocation can be more responsive to changes in the asset/liability relationship. By bifurcating plan assets into both beta (bonds) and alpha (everything else) buckets, a plan can improve liquidity, eliminate interest rate risk, extend the investing horizon for the alpha assets, and use bonds more appropriately for their cash flows, while also stabilizing the funded status and contribution expenses.

There are no guarantees, of course, but a little change in the funded status of your state’s public pension plan may just encourage your residents to stay, while attracting others from around the U.S. Why not give it a try?

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