Substantial recent news coverage, including on Conduit Street, of a report by the Pew Center on the States has raised attention to the funding status of state-run pension systems and retirement benefits. With the recent shift of the normal costs of the pensions for teachers to county governments (note: this does not include the costs directly attributable to the systems’ unfunded liability), county officials have gained a heightened interest in such matters.
A recent response (June 28) from the National Council on Teacher Retirement offers some additional perspective on this data, including a view that the Pew reports’ reliance on FY 2010 data unfairly skews its conclusions by omitting the more recent strong returns from equity markets, where most public pension systems are substantially invested. From the NCTR blog site:
However, the Pew report’s analysis uses old data that fails to reflect recent market gains. As Keith Brainard, NASRA’s Director of Research, points out, by relying on FY 2010 data, “the dates the Pew study is using to measure the condition of many public pension plans are near the low point of the recent investment market decline.” Nearly one-half of plans in the NCTR/NASRA Public Fund Survey have an actuarial valuation date that pre-dates their fiscal year-end date, usually by one year, Keith notes.
Also, in order to arrive at the $1.38 trillion figure, Pew once again combines pensions with retiree healthcare. As NCTR and NASRA have noted in the past, retiree healthcare cost containment options, financing structures and benefit protections are entirely different from those of pensions. Pew’s decision to couple retiree healthcare with pension liabilities distracts from the issues States face with these very different benefits.
Finally, as Pew itself notes, its report does not reflect the many actions that States have taken in 2010 and 2011 to address plan sustainability, including benefit cuts. The condition of some states “may have improved because of those reforms,” Pew concedes.
As most Maryland stakeholders will recall, Maryland effected a series of reforms to its retirement and pension systems during the 2011 legislative session, embedded in that year’s budget reconciliation act and detailed in the DLS 90 Day Report. The net effects of these changes will serve to lessen the state’s unfunded liability — from the 90 Day Report:
The pension reform provision of the BRFA of 2011 establish a goal of reaching 80% actuarial funding within 10 years by reinvesting a portion of the savings generated by the benefit restructuring into the pension system in the form of increased State contributions above the contribution required by statute. In fiscal 2012 and 2013, all but $120 of the savings generated by the benefit restructuring are reinvested, with the $120 million dedicated to budget relief each year. Beginning in fiscal 2014, the amount reinvested in the pension fund is subject to a $300 million cap, with any savings over that amount dedicated to budget relief.
The Maryland State Retirement and Pension System reports that its FY 2011 returns have been positive, and also have advanced the position of the state-run system. The Market Value and Investment Performance data for the 12 months ending June 30, 2011 showed a 20.04% performance, and a $37.5 billion market value, both documenting substantial gains since the “snapshot” used for the Pew report.
Another source for running dialog on pension issues is Pension Dialog, which details information on pensions in the news, but also on the mechanics of public pension systems generally.