Live Long and Prosper. . . from Your Government Pension

A policy analyst at the Reason Foundation describes how longevity in the public workforce, if not factored into cost predictions, can create difficulties for local government pension plans. 

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A recent study found that workers in certain government professions, especially teachers, tend to live longer than those retired from the private sector or the general public.

Local governments that support pensions for those government employees, therefore, need to ensure that they are using updated mortality projections for their budget planning purposes.

A policy analyst at the Reason Foundation describes the difficulty,

Many state and local governments continue to grapple with exorbitant unfunded pension liabilities, with underperforming assets and insufficient employer contributions being the major culprits. Another contributing factor that often gets overlooked, however, is the use of outdated mortality rate assumptions. A recent study by the Society of Actuaries (SOA)—which for the first time specifically focused on public pension plans—confirmed a long-standing belief that public workers in certain professions do live longer than the rest. This could potentially portend higher costs of pre-funding benefits for many small to mid-sized public pension plans that rely on private-sector mortality tables for their liability projections.

For more information, see Public Employees Are Living Longer Than Previously Assumed, New Report Finds from the Reason Foundation.

It is often difficult to predict the cost of pension benefit changes. When pension legislation is introduced in the Maryland General Assembly, the Department of Legislative Services works with actuaries at Bolton Consulting to determine potential effects. However, oft-times variables make even estimates difficult or require a wide error margin.

For example, the fiscal analysis of HB 1133, Military Service Credit – Eligibility, acknowledges the difficulty in ascertaining the number of employees who might be eligible for a certain enhanced pension service credit, the ages of those who might be eligible, and therefore, the difficulty of determining the estimated increase in pension liabilities.

For more information, see the fiscal and policy note for HB1133 and MACo’s testimony in opposition to the legislation.

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