Tag: Jean-Pierre Aubry

Legacy Debt in Public Pensions: A New Approach

Mary Pat Campbell

Link: https://crr.bc.edu/briefs/legacy-debt-in-public-pensions-a-new-approach/

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Excerpt:

The inclusion of “legacy debt” – unfunded liabilities from long ago – with current liabilities impedes effective pension policy.

A new approach would separate legacy debt from other unfunded liabilities in order to:

spread the legacy cost over multiple generations; and

properly identify fixed vs. variable costs.

It would also use the municipal bond yield – rather than the assumed return on assets – to calculate liabilities and required contributions.

This approach, by properly allocating costs, would improve intergenerational fairness, government resource decisions, and public credibility.

Author(s): Jean-Pierre Aubry

Publication Date: June 2022

Publication Site: Center for Retirement Research at Boston College

Forensic Analysis of Pension Funding: A Tool for Policymakers

Mary Pat Campbell

Link: https://crr.bc.edu/briefs/forensic-analysis-of-pension-funding-a-tool-for-policymakers/

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Full pdf: https://crr.bc.edu/wp-content/uploads/2022/04/SLP83_.pdf

Key findings:

State and local policymakers face a growing pension cost burden, but often lack understanding of the root causes.

One underappreciated cause is “legacy debt” – unfunded liabilities accumulated long ago, before plans adopted modern funding practices.

Legacy debt still exists today because historical unfunded liabilities were ultimately paid in full using some of the money intended to fund later benefits.

In a sample of plans with particularly low funded ratios, legacy debt averaged more than 40 percent of unfunded liabilities.

A failure to recognize the legacy debt has provided misleading information about benefit generosity, hindering progress toward effective solutions.

Author(s): Jean-Pierre Aubry

Publication Date: April 2022

Publication Site: Center for Retirement Research at Boston College

Has COVID Affected Pensions for Workers without Social Security?

Mary Pat Campbell

Link:https://crr.bc.edu/briefs/has-covid-affected-pensions-for-workers-without-social-security/

PDF: https://crr.bc.edu/wp-content/uploads/2022/01/SLP81.pdf

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Excerpt:

At the outset of the pandemic recession, many feared it would undermine workers’ employer-sponsored retirement plans.

State and local employees who are not covered by Social Security would have been particularly vulnerable, as they lack the buffer this program offers.

Their employer defined benefit plans would have been hurt by a long recession with poor investment returns and reduced contributions due to tax shortfalls.

Instead, these plans exceeded their return targets; tax revenues held up; and government sponsors got stimulus aid, so plan funded ratios actually improved.

And long-term structural headwinds such as negative cash flows and aggressive return targets still pose little risk to their ability to pay future benefits.

Author(s):Jean-Pierre Aubry and Kevin Wandrei

Publication Date: January 2022

Publication Site: Center for Retirement Research at Boston College, Working Paper

2021 Update: Public Plan Funding Improves as Workforce Declines

Mary Pat Campbell
2021 Update: Public Plan Funding Improves as Workforce Declines

Full Report: https://crr.bc.edu/wp-content/uploads/2021/06/SLP78.pdf

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Excerpt:

The aggregate funded ratio improved from 73 to 75 percent from FY 2020 to 2021. At the same time, contribution rates rose from 21 to 22 percent of payrolls.

While initial expectations for public pensions were low due to COVID, financial markets rebounded and municipal tax revenues were quite resilient.

Yet one other COVID-related factor – cuts to the state and local workforce – impacted public pension finances in FY 2021.

These cuts had little impact on funded status and required contribution amounts, but they do explain the rise in contribution rates, which are expressed as a share of lower payrolls.

Author(s): Jean-Pierre Aubry, Kevin Wandrei

Publication Date: June 2021

Publication Site: Center for Retirement Research at Boston College