This report discusses the public policy objectives of pension and OPEB funding and develops a model funding policy consistent with those objectives as well as with actuarial standards of practice. Appropriate plan funding is a major issue for retirement systems, with current funding levels relatively low and recognizing constraints on available resources. With the elimination of the ARC (Actuarial Required Contribution) under GASB Statement 68, which has been used by many plans as the "out of bounds marker" for funding, there is little guidance for setting contribution levels. “Actuarial Funding Policies and Practices for Public Pension and OPEB Plans and Level Cost Allocation Model” was adopted March 1, 2013 by the legislature-created California Actuarial Advisory Panel to advise actuaries and retirement boards both in California and across the U.S when setting funding policies. John Bartel is a member of the California Actuarial Advisory Panel. Please contact John or any of our actuaries to understand the model funding policies and how they might apply to your plan.
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A new report by the Pew Charitable Trusts, “A Widening Gap in Cities: Shortfalls in Funding for Pensions and Retiree Health Care” found a funding shortfall of $217 billion for 61 of the nation’s largest cities in 2009. Of this, $118 billion was for retiree healthcare (“OPEB”) benefits. The report examines plans of the largest city in each state, plus other very large cities. In all, over 45% of U.S. municipal employees are covered by the surveyed plans.
To get a better view of the present state of major pension plans, and the potential impact of their vulnerabilities on governments, taxpayers, and investors, Morningstar has analyzed current data for pension plans administered by each of the 50 states.
The IRS has issued draft proposed regulations that outline the requirements for being a government pension plan. Governmental pension plans are not subject to many of the rules others are subject to, so governmental plan status is critical. In particular, these rules define what is “an agency or instrumentality of a State or political subdivision of a State.” This may be a very significant issue for agencies that are participating in CalPERS. There are opportunities for public comment to IRS both on these rules, and the proposed regulations which will follow.
This article from the Legislative Analyst’s Office (California’s Nonpartisan Fiscal and Policy Advisor) reviews Chapter 9 of the Federal bankruptcy code as it applies to local governments and municipalities. It outlines the process and addresses questions including whether retiree benefits could be reduced.
This 2012 survey of over 2,330 local units of government nationwide in Cobalt Community Research's "National Study of Local Government Health and OPEB Funding Strategies" found that, compared to 2011, "7% fewer local units of government ... provide health coverage to their active employees. Governments who do provide health coverage are paying a slightly smaller share of the premium. Fewer local governments are self-insuring. ...[There is] a significant drop in the percentage of local governments who provide health insurance for retired employees, especially in the Midwest. ...[T]here was a slight decrease in the percentage of local governments who are fully or partially prefunding their retiree health liabilities."
This is a report by the Public Employee Post-Employment Benefits Commission in January of 2008 about how to best fund post-employment benefits for our state's workforce.
U.S. Government Accountability Office found that despite the recent economic downturn, most large state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more. However, pension plans still face challenges over the long term due to the gap between assets and liabilities.
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