Tag: unfunded liability

The sustainability of state and local government pensions: A public finance approach

Mary Pat Campbell

Link: https://www.brookings.edu/bpea-articles/the-sustainability-of-state-and-local-government-pensions-a-public-finance-approach/

Conference draft: https://www.brookings.edu/wp-content/uploads/2021/03/BPEASP21_Lenney-et-al_conf-draft_updated_3.24.21.pdf

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Excerpt:

“Given other demands, fully funding their pension plans might not be the right thing for state and local governments,” Sheiner said in an interview with The Brookings Institution. “They should compare the benefits of upping their pension investments with the benefits of investing in their people.”

Most research evaluates state and local pension plans on the assumption they should be fully funded—that is, their assets are sufficient to meet all anticipated obligations to current and future retirees. State and local pension plans, benefiting more than 11 million retirees, hold nearly $5 trillion in assets and, according to a recent estimate cited in the paper, would require an additional $4 trillion to meet all of their obligations.

However, in The sustainability of state and local government pensions: A public finance approach, the authors observe that, using the types of calculations that economists recommend, state and local pension plans have never been fully funded—meaning that they have always been implicitly in debt. Furthermore, they show that being able to pay benefits in perpetuity doesn’t require full funding. If plans contribute enough to stabilize their pension debt, that is enough to enable them to make benefit payments over the long run.

Author(s): Jamie Lenney, Byron Lutz, Finn Schüle, Louise Sheiner

Publication Date: 24 March 2021

Publication Site: Brookings

Public pensions don’t have to be fully funded to be sustainable, paper finds

Mary Pat Campbell

Link: https://www.marketwatch.com/story/public-pensions-dont-have-to-be-fully-funded-to-be-sustainable-paper-finds-11622210967

Excerpt:

Governments “don’t have to pay off their debt like a household does,” said Louise Sheiner, policy director for the Hutchins Center on Fiscal and Monetary Policy at the Brookings Institution. “They can just keep rolling it over. They’re never going to go out of business and have to pay all at once.”

Sheiner is co-author, along with Jamie Lenney of the Bank of England, Byron Lutz of the Federal Reserve Board of Governors, and Brown University’s Finn Schüle, of Sustainability of State and Local Government Pensions: A Public Finance Approach, which was presented at a Brookings conference in March.

State and local liabilities can also be likened to the federal government’s deficit and debt, Sheiner said in an interview with MarketWatch. Most economists think that as long as those numbers stay constant as a share of the economy, it’s not problematic.

Author(s): Andrea Riquier

Publication Date: 2 June 2021

Publication Site: Marketwatch

WHY TRUTH IN ACCOUNTING’S RECENT CLAIMS ABOUT PENSIONS ARE INACCURATE

Mary Pat Campbell
Why Truth in Accounting’s Recent Claims About Pensions Are Inaccurate

Excerpt:

As routine as the changing of the seasons, every year, Truth in Accounting (TIA) produces a new report which declares that taxpayers across the country will somehow have to foot a huge tax bill immediately to pay for their state’s unfunded pension liabilities. However, a recent working paper from the Brookings Institution shows this is not a truthful depiction of how public pension funding works. 

TIA often argues that taxpayers are responsible for paying their city and/or state’s unfunded liabilities in a few ways. First, if a pension isn’t at 100% funded status in the course of a given year, they state that the pension is somehow in grave jeopardy and that its unfunded liabilities need to be paid immediately to ensure the pension is “debt-free.” They then calculate a supposed “taxpayer burden,” or an amount each taxpayer will have to pay to meet their state or local pension’s unfunded liabilities. 

These tactics, which are often amplified by news outlets critical of public pensions such as the Center Square, are designed to elicit fear that taxpayers will have to fork over a large bill at some point in the future for their area’s pensions. 

Author(s): Tristan Fitzpatrick

Publication Date: 2 June 2021

Publication Site: National Public Pension Coalition

My Word | The rhetoric does not match the arithmetic on public pensions

Mary Pat Campbell
My Word | The rhetoric does not match the arithmetic on public pensions

Excerpt:

In 2015 Eureka started paying down its unfunded pension liability. These pension debt payments were $921,000 in 2015, $1 million in 2016, $3.9 million in 2017, $4.6 million in 2018, $5.4 million in 2019, and $5.7 million in 2020. Going forward, these debt payments will increase from $6 million in 2021 to $8.4 million in 2029, and are currently scheduled to continue until 2038. In 2015, Eureka cut $834,000 from the Eureka Police Department budget. Heading into budget talks in early 2020, EPD Chief Steve Watson talked of how EPD had seen a 19% reduction in staffing since 2016. Eureka followed up these previous cuts to EPD in its FY 2020-2021 budget with a funding cut of $1.1 million and loss of six more positions, including four officers, for EPD.

…..

The rhetoric does not match the arithmetic. Pension debt payments are funding taken out of the budget and represent tax dollars that are not invested in the community and that citizens see no current services for. Not exactly keeping funding local. With so many governmental agencies in the same debilitated economic situation due to pension obligations, the economic evidence does not support the claim of governments being prudent in their spending. Constant increases in funding for pension obligations along with cuts to law enforcement and other services do not support the idea that tax dollars are the taxpayers’ dollars as a priority expenditure.

Author(s): Patrick Cloney

Publication Date: 2 June 2021

Publication Site: Times-Standard

Municipal Pension Funding Increased in Recent Years, but Challenges Remain

Mary Pat Campbell

Link: https://www.pewtrusts.org/en/research-and-analysis/fact-sheets/2021/05/municipal-pension-funding-increased-in-recent-years-but-challenges-remain

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The first metric is net amortization, which measures whether total contributions to a public retirement system are sufficient to reduce unfunded liabilities if all actuarial assumptions—primarily investment expectations— are met for that year. Plans with positive net amortization are expected to retire pension debt over time and therefore improve their funded status. 

Pew reviewed the three-year average for net amortization. This figure provides a more complete picture of contribution adequacy given the impact of volatile investment performance and demographic experience on plan assets. In total, the 33 cities in Pew’s analysis achieved positive amortization (104% of the benchmark) from 2015 to 2017. However, individually, more than half of the cities had negative amortization. Notably, Chicago and Dallas contributed less than 50% of the benchmark. In contrast, New Orleans contributed 174%, or $132 million, which was well over the city’s benchmark over the time period. For cities that are poorly funded, net amortization can indicate that they are on a path toward sustainably funding their pension plans. For example, New Orleans and Philadelphia have both increased their contributions significantly in recent years to achieve positive net amortization and decrease unfunded liabilities. On the other hand, better funded cities that fell short of the benchmark may face growing pension debt absent a policy change or adjustment.

Author(s): David Draine

Publication Date: 18 May 2021

Publication Site: Pew Charitable Trusts

Readers React: Blame Pa. legislators for public pension mess

Mary Pat Campbell

Link: https://www.mcall.com/opinion/readers-react/mc-opi-let-schreiber-public-sector-pension-benefits-20210518-e5cwxkfscrdupc5v6vebixqxhe-story.html

Excerpt:

Between roughly 1997 and 2009, legislators decided to pay less of the employer contribution amount than statisticians deemed necessary. In kitchen table terms, those legislators chose not to pay their bills.

Now that creditors are demanding those bills be paid, critics are claiming the payouts are undeserved, and too generous.

It’s really a shame so many seem to feel it’s OK to not pay bills from the past because the interest is too high. I bet few business owners would accept nonpayment because customers chose to not pay when billed and now claim payments are too high.

Author(s): Thomas Schreiber

Publication Date: 18 May 2021

Publication Site: The Morning Call

NJ Pension Palaver

Mary Pat Campbell
NJ Pension Palaver

Excerpt:

Public employees and their unions are certainly to blame for allowing promises made to not be fully funded,

Those contributions that public employees make are negotiated at levels they have input into (nothing to do with funding benefits honestly); and

What worthwhile programs for New Jerseyans did those tens of billions of dollars in missed payments fund and, if that money was invested wisely, shouldn’t New Jerseyans be reaping some benefits around now? If the money was not invested wisely then why begrudge not having more of it to waste?

Author(s): John Bury

Publication Date: 11 April 2021

Publication Site: Burypensions

Peter Roff: Beware the Pension Bailout Hidden Inside COVID-19 Relief Bill

Mary Pat Campbell

Link: https://www.noozhawk.com/article/peter_roff_beware_pension_bailout_hidden_inside_covid_19_bill_20210403

Excerpt:

California’s total estimated pension liability is something like $1 trillion. To balance its books, Sacramento had to get money from taxpayers in Florida, South Dakota, Utah and, other, better-managed states (through the COVID-19 stimulus) to close the gap.

Whether it will be enough to stop municipal fire departments from bringing private ambulance and medical services “in-house” is yet to be seen. Hopefully, it will — which would be a good thing for taxpayers and people in need.

Otherwise, the pattern of using federal reimbursements for services provided to cover the losses in underfunded public employee pension plans will continue, much to the determinant of taxpayers.

Author(s): Peter Roff

Publication Date: 3 April 2021

Publication Site: Noozhawk

Alicia Munnell: Biden’s Social Security Tax Hike Plan Falls Short

Mary Pat Campbell

Link: https://www.thinkadvisor.com/2021/03/19/alicia-munnell-bidens-social-security-plan-falls-short/

Excerpt:

THINKADVISOR: What’s your take on President Biden’s proposal for fixing Social Security?

ALICIA MUNNELL: A step in the right direction. Good ideas but incomplete. There’s nothing wrong with it. It’s just not complete. He wants to have a few benefit enhancements and to increase taxes for people earning over $400,000. But I don’t think his numbers close the full 75-year Social Security [system] shortfall.

Author(s): Jane Wollman Rusoff

Publication Date: 19 March 2021

Publication Site: Think Advisor

Rising costs of CalSTRS debt takes money from students, classrooms

Mary Pat Campbell
Rising costs of CalSTRS debt takes money from students, classrooms

Excerpt:

The California State Teachers’ Retirement System (CalSTRS) recently reported a 26 percent increase in early teacher retirements in the second half of 2020 relative to the previous year. CalSTRS officials suggest that the COVID-19-driven spike in retirements will not affect the pension plan’s long-term solvency. But even if that holds true, CalSTRS is currently only 66 percent funded and has $100 billion in unfunded benefits. The costs associated with paying off this pension debt are skyrocketing and siphoning hundreds of millions of dollars from classrooms each year.

Like many states, California has made decades of legally ironclad promises to teachers regarding retirement benefits that, for a variety of reasons, have become massively underfunded.  The most notable factors contributing to growing debt are underperforming investments, inaccurate actuarial assumptions, and politicians’ longstanding preference to spend money on sexier things than retirement plans. When a public pension plan accrues debt, states and school districts need to start paying down that debt in addition to covering the normal operating costs associated with pensions. While California’s ledger would indicate it has been making pension debt payments, CalSTRS funding has only gotten worse over the last decade.

Author(s): LEONARD GILROY and ZACHARY CHRISTENSEN

Publication Date: 5 March 2021

Publication Site: Orange County Register

Employee Costs and Pensions are driving Connecticut Toward Insolvency

Mary Pat Campbell

Link: https://ctexaminer.com/2021/03/20/employee-costs-and-pensions-are-driving-connecticut-toward-insolvency/

Excerpt:

Indeed, Jahncke provided public testimony before the Connecticut General Assembly in January 2020 in which he cited the two 50-state studies and then explained why he relied upon multi-state studies rather than single-state studies: “when you are being compared to 50 other states, there is no way that anyone can complain that somebody is jimmying the numbers about Connecticut… these are across-the-board, level playing field [results.]”

Goldrick is just such a complainer, seeking to discredit Yankee’s 2015 study, by stating that “Yankee is not a reputable source of research but rather a right-wing, dark-money fueled, propaganda outlet…”

Then, Goldrick cites “meticulous analysis” supposedly “debunking the Yankee Institute report” – analysis conducted by the Economic Policy Institute, which even The New York Times calls “a left-leaning research group.”

Goldrick’s extreme bias has colored his view of Jahncke’s column and led him to make baseless criticisms while omitting important facts supporting Jahncke’s argument.

Author(s): Edward Dadakis 

Publication Date: 20 March 2021

Publication Site: CT Examiner

MOODY’S REPORT: ILLINOIS PENSION DEBT REACHES RECORD-HIGH $317 BILLION

Mary Pat Campbell

Link: https://www.illinoispolicy.org/moodys-report-illinois-pension-debt-reaches-record-high-317-billion/

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Because the state systemically underestimates its pension debt, it also underestimates the taxpayer contributions necessary to keep the debt from growing each year. During the past decade, officially-reported growth in pension debt outpaced the state’s initial projections by $24 billion. Growth in annual taxpayer contributions exceeded state estimates by about 15% per year on average, causing taxpayers to contribute $7.6 billion more than projected during the decade. Still, that extra money has not slowed a mushrooming pension debt. The state’s regular upward revisions demonstrate Moody’s method, which is more in line with private sector standards, is more accurate.

Because employee contributions to the pension funds and benefits paid out are both fixed by state law, taxpayers must make up for any shortfall caused when investment returns miss rosy targets. For example, the largest of Illinois’ five state pension systems, the Teachers’ Retirement System, reported a 0.52% return on investment in fiscal year 2020, which included the first four months of the COVID-19 pandemic. That was far short of the TRS’s 7% return target and helped grow the debt.

Author(s): Adam Schuster

Publication Date: 5 March 2021

Publication Site: Illinois Policy Institute