Hey BlueNC, there's a difference between underfunding and underperformance!

Recently, I was mentioned on BlueNC (a progressive website) in their Tuesday Twitter round up

I quote:

But university professors should know better than relying on safe tactics to back up their positions. North Carolina's pension plan weathered the storm admirably:

Year/Value of assets/Accrued liability/Unfunded liability/Funded ratio

2006 $68,808,403,000 $65,862,247,000 $(2,946,156,000) 104.47%
2007 $72,952,274,000 $70,573,970,000 $(2,378,304,000) 103.37%
2008 $73,124,299,000 $73,627,879,000 $503,580,000 99.32%
2009 $74,447,112,000 $76,976,542,000 $2,845,127,000 96.71%
2010 $76,599,104,000 $79,558,260,000 $2,959,156,000 96.28

Perhaps I can explain to the folks at BlueNC the difference between underperformance and underfunding.  

Underfunding happens when the state doesn't put enough money into the pension plan, or the plan lags its return assumption over a long period of time.

Underperformance can occur at anytime and is when the pension fund earns a return that is less than a reasonable benchmark.

The NC pension fund was slightly underfunded in 2008, but performed poorly in 2008.  Notably, the alternatives in the portfolio did terribly that year.  As the recent push into alternatives is supposed to mitigate downside risk, the 2008 data point is of great interest.   It shows clearly that alternatives don't deliver downside protection.

So BlueNC - there is a difference between underperformance and underfunding and this university professor knows exactly what he is talking about, unlike some other folks.