Readers React: Blame Pa. legislators for public pension mess

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

The Sustainability of State and Local Government Pensions: A Public Finance Approach

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

Graphic:

Excerpt:

In this paper we explore the fiscal sustainability of U.S. state and local government pensions plans.
Specifically, we examine if under current benefit and funding policies state and local pension plans
will ever become insolvent, and, if so, when. We then examine the fiscal cost of stabilizing pension
debt as a share of the economy and examine the cost associated with delaying such stabilization
into the future. We find that, despite the projected increase in the ratio of beneficiaries to workers
as a result of population aging, state and local government pension benefit payments as a share of
the economy are currently near their peak and will eventually decline significantly. This previously
undocumented pattern reflects the significant reforms enacted by many plans which lower benefits
for new hires and cost-of-living adjustments often set beneath the expected pace of inflation.
Under low or moderate asset return assumptions, we find that few plans are likely to exhaust their
assets over the next few decades. Nonetheless, under these asset returns plans are currently not
sustainable as pension debt is set to rise indefinitely; plans will therefore need to take action to
reach sustainability. But the required fiscal adjustments are generally moderate in size and in all
cases are substantially lower than the adjustments required under the typical full prefunding
benchmark. We also find generally modest returns, if any, to starting this stabilization process
now versus a decade in the future. Of course, there is significant heterogeneity with some plans
requiring very large increases to stabilize their pension debt.

Author(s): Jamie Lenney, Bank of England
Byron Lutz, Federal Reserve Board of Governors
Finn Schüle, Brown University
Louise Sheiner, Brookings Institution

Publication Date: 25 March 2021

Publication Site: Brookings

The Pandemic Hit Public Pension Funds Hard — But Now They’re Better Funded Than They’ve Been in Years

Link: https://www.institutionalinvestor.com/article/b1rmn95n2tb93d/The-Pandemic-Hit-Public-Pension-Funds-Hard-But-Now-They-re-Better-Funded-Than-They-ve-Been-in-Years

Excerpt:

Plans that experienced larger declines in funded status may have “erased” losses and experienced “incrementally higher asset returns and funded status gains” as risk assets rallied through the latter half of the year, the report said.

“The same thing that caused volatility in their portfolios on the way down actually helped on the way back up,” said William Chang, pension strategist at GSAM.  “When the pandemic hit last year, it was one of the quickest drawdowns, one of the quickest declines in equity markets. And the subsequent recovery and exit out of that bear market was equally as quick.” 

At the end of March 2020, the top quartile of plan funded status was around 81 to 90 percent. By March 2021, that figure increased to 91 to 100 percent funded status, according to the report. GSAM attributed the improvement to the subsiding effects of the pandemic: rising vaccination numbers, declining initial jobless claims, and rising consumer confidence.

Author(s): Jessica Hamlin

Publication Date: 3 May 2021

Publication Site: Institutional Investor

What NJ Tells Creditors On Benefits

Graphic:

Excerpt:

According to the EMMA website New Jersey borrowed another $400 million last week for which they had to provide an Official Statement which included 20 pages on the situation with public pensions and benefits. Excerpts follow.

…..

The contribution of the Lottery Enterprise is valued as of June 30, 2020 at $12.569 billion, based on a 30-year straight line amortization. However, the first reevaluation of the value of the Lottery Enterprise required by LECA has not yet been performed. If the contribution of the Lottery Enterprise were not taken into consideration in calculating the funded ratio of the Pension Plans, the funded ratio of the Pension Plans as of June 30, 2020 would have been 37.6% instead of 49.8%. (page I-60)

Author(s): John Bury

Publication Date: 3 May 2021

Publication Site: Burypensions

Milliman analysis: Public pensions’ funded ratio hits new high at 79.0% in Q1 2021

Link: https://www.prnewswire.com/news-releases/milliman-analysis-public-pensions-funded-ratio-hits-new-high-at-79-0-in-q1-2021–301271688.html

Excerpt:

In 2021, public pensions have continued their strong recovery from a year prior, with the funded status of the Milliman 100 plans increasing to 79.0% as of March 31, up from 78.6% at the end of December 2020 and 66.0% in Q1 2020. The Q1 2021 funded ratio is the highest recorded in the history of Milliman’s Public Pension Funding Study.

“While 2021 has proven to be a strong year for public pensions so far, there are still lingering questions around the impact of the COVID-19 pandemic on these plans,” said Becky Sielman, author of Milliman’s Public Pension Funding Study. “The past year has seen workforce volatility and strain on state budgets which could put downward pressure on funding in the future.”

Author(s): Milliman

Publication Date: 19 April 2021

Publication Site: PRNewswire

Milliman analysis: Corporate pension funded ratio climbs to 92.9% in February

Link: https://www.prnewswire.com/news-releases/milliman-analysis-corporate-pension-funded-ratio-climbs-to-92-9-in-february-301242549.html

Excerpt:

Milliman, Inc., a premier global consulting and actuarial firm, today released the latest results of its latest Pension Funding Index (PFI), which analyzes the 100 largest U.S. corporate pension plans.

In February, corporate pension funding improved by $67 billion thanks to a 26-basis-point increase in the monthly discount rate, from January’s 2.62% to 2.88% as of February 28. As a result, the funded status deficit dropped to $133 billion at month’s end. Meanwhile, the market value of assets dropped by $2 billion for the month, the result of a meager 0.13% investment gain. Overall the funded ratio for the Milliman PFI plans climbed from 89.7% at the end of January to 92.9% as of February 28, the fifth straight month of improved funding for these plans.

Author(s): Milliman

Publication Date: 8 March 2021

Publication Site: PRNewswire

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

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

Graphic:

Excerpt:

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

Montana Teacher Retirement System Pension Solvency Analysis

Graphic:

Excerpt:

The latest analysis by the Pension Integrity Project at Reason Foundation, updated this month (February 2021), shows that deviations from the plan’s investment return assumptions have been the largest contributor to the unfunded liability, adding $897 million since 2002. The analysis also shows that failing to meet investment targets will likely be a problem for TRS going forward, as projections reveal the pension plan has roughly a 50 percent chance of meeting their 7.5 percent assumed rate of investment return in both the short and long term.

In recent years TRS has also made necessary adjustments to various actuarial assumptions, exposing over $400 million in previously unrecognized unfunded liabilities. The overall growth in unfunded liabilities has driven Montana’s pension benefit costs higher while crowding out other education spending priorities in the state, like classroom programming and teacher pay raises.

The chart below, from the full solvency analysis, shows the increase in the Montana Teacher Retirement System’s debt since 2002:

Author(s): Jen Sidorova, Swaroop Bhagavatula, Steven Gassenberger, Leonard Gilroy

Publication Date: 1 March 2021

Publication Site: Reason

Illinois’ record-setting pension debt jumps to over $300 billion – Wirepoints

Graphic:

Excerpt:

The state assumes the pension funds will continue to earn an average of nearly 7 percent a year, while Moody’s lowered its assumptions for 2020 to just 2.7 percent: “the FTSE Pension Liability Index, a high-grade corporate bond index Moody’s uses to value state and local government pension liabilities, fell to 2.70% as of June 30, 2020, from 3.51% the prior year.”

Moody’s also reported that the asset-to-payout ratio for the state’s funds are now equal to about seven years’ worth of payouts.

That’s down compared to Wirepoints’ report on asset-to-payout ratios we released last year in this report: COVID-19 pushes nation’s weakest public pension plans closer to the brink: A 50-state survey

Author(s): Ted Dabrowski and John Klingner

Publication Date: 4 March 2021

Publication Site: Wirepoints

Funded status of largest U.S. pension plans climbs in 2020

Link: https://www.pionline.com/pension-funds/funded-status-largest-us-pension-plans-climbs-2020

Excerpt:

The average funding ratio of 19 U.S. publicly listed corporations with more than $20 billion in global pension fund liabilities totaled 86.2% at the end of 2020, up from 84.9% at the start of the year, according to a report from Russell Investments.

Strong investment returns offset a decrease in the discount rate of more than 70 basis points that brought the total liabilities of the club to more than $1 trillion for the first time, said the report released Tuesday.

Assets for the “$20 billion club” totaled $901.9 billion as of Dec. 31, up 8.6% from the start of the year, and projected benefit obligations totaled $1.05 trillion, up 7.3% from the start of the year.

Author(s): Rob Kozlowski

Publication Date: 2 March 2021

Publication Site: Pensions & Investments

Illinois taxpayers paying former lawmakers $2.1 million a month from underfunded pension system

Link: https://www.thecentersquare.com/illinois/illinois-taxpayers-paying-former-lawmakers-2-1-million-a-month-from-underfunded-pension-system/article_ac37e44e-6d84-11eb-a861-9372dad286d9.html#new_tab

Excerpt:

Illinois taxpayers pay more than $2.1 million a month to retired part-time state legislators or their surviving spouses from a fund that’s only 16% funded. The individual monthly payouts are as high as $18,000 per month. Some pensioners aren’t actually retired but still getting paid.

There are 425 people drawing off the General Assembly Retirement System, ranging from $122 a month to $18,000.

At 16% funded, state Rep. Mark Batinick, R-Plainfield, said GARS is the worst of the state’s five public sector pension funds.

Author(s): Greg Bishop

Publication Date: 14 February 2021

Publication Site: The Center Square

Multiemployer Pensions Reach Highest Funding Levels in 13 Years

Link: https://www.ai-cio.com/news/multiemployer-pensions-reach-highest-funding-levels-13-years/?

Excerpt:

Robust investment returns helped boost the aggregate funded percentage of all US multiemployer pension plans to 88% at the end of 2020, from 85% a year earlier—the highest since before the global financial crisis at the end of 2007—according to consulting and actuarial firm Milliman.  

The strong performance came despite a turbulent year of market volatility due to the impact of the COVID-19 pandemic. The volatility caused those same plans’ funded ratio to plunge to 72% during the first quarter of the year, which was the largest quarterly drop in funded percentage since 2007. That was followed by a rebound to 82% in the second quarter, which was the largest quarterly increase in funded percentage since 2007.

Author(s): Michael Katz

Publication Date: 22 February 2021

Publication Site: ai-CIO