Accounting for the State of Public Pensions
By Jennifer Burnett, CSG Program Manager, Fiscal and Economic Development Policy
Shortfalls in state-run retirement systems continue to grow and in fiscal year 2012, the gap between promises to state workers and funding reached $915 billion.
“Many states are facing rising costs to pay for pension obligations and unfunded liabilities for future pension costs that are squeezing other budget priorities,” said Adrian Moore, vice president of the Reason Foundation.
Unfunded pension obligations can have significant implications for a state’s fiscal stability, including increased borrowing costs, lowered credit ratings and the diversion of state resources away from other spending priorities like infrastructure and education.
“Most states will see pension costs eating into their budgets in coming years, if they are not already,” said Moore. “States already facing real problems will need to look at comprehensive reforms like those recently enacted in Utah, Oklahoma and Kentucky.”
According to a report by the TIAA-CREF Institute and the Rockefeller Institute of Government, 99 percent of full-time public sector employees have access to an employment-based retirement plan, but a number of factors have led nearly every state—along with some local governments—to consider and implement reforms.
“Public pensions and their financing have been divisive issues in many state and local governments in recent years, and meeting pension obligations will continue to be a challenge in many state and local governments for years to come,” Thomas Gais, director of the Rockefeller Institute, said in a press release.
Tackling public pension reform is a big, complex task that states have approached in a variety of ways.
“Many states have taken small steps to deal with some of their pension funding issues, while several states have undertaken more dramatic reforms,” said Moore.
Both short- and long-term factors—including the economic recession that began in late 2007—have given rise to public pension solvency concerns. State policymakers and public pension plan administrators have used a number of tools to address those concerns.
“Like all institutional investors, public pension plans were hit hard by the Great Recession,” Hank Kim, executive director and counsel of the National Conference on Public Employee Retirement Systems, said in a statement. “Public pension plans responded by adopting numerous systemic and organizational reforms, including increasing employee contributions, raising benefit eligibility ages, changing actuarial analyses, revising internal accounting procedures and more.”
To help state policymakers better understand the intricacies of public pension reform, CSG will host a full-day policy academy in conjunction with the CSG National/CSG West 2014 Annual Conference Aug. 9, in Anchorage, Alaska.
Representatives from The Reason Foundation, TIAA-CREF and the National Conference on Public Employee Retirement Systems will be joined by state leaders in pension reform to discuss the current state of public pensions—including a primer on the language of pensions—and explore how states are approaching reform and the potential fiscal and legal ramifications of making changes.
For more information, contact Jennifer Burnett, program manager, fiscal and economic development policy, (859) 244-8114, email@example.com.