Decisions made more than 30 years ago drive challenges. The seeds of the City’s pension problems were sown more than three decades ago when the City promised unsustainable benefit increases to members of the retirement system without funding the associated annual Actuarily Determined Contribution (ADC).2
The severity of the situation makes Providence an outlier. The City of Providence’s Employee Retirement System (ERS) is among the lowest funded pension plans in the nation. Since 1991, the City’s unfunded pension liability increased by more than $1 billion. In addition to the pension liabilities, and over and above the pension shortfall, the City’s retiree health benefits are underfunded by approximately $1.1 billion.3 The unfunded liability of the ERS drives costs to City that outpace revenue growth, limiting investments in other priorities. As of June 30, 2020, the ERS was only 22.2 percent funded.4 Total pension liabilities equated to $8,518 per resident – of which $6,629 is not funded.5 In the last twenty years, the City’s unfunded liability per capita increased by $4,000 per resident.
Chicago once again earned a failing grade from Truth in Accounting in their latest Financial State of the Citiesreport thanks to over $38 billion in debt – $43,100 for each taxpayer.
Every Chicagoan would have to send the city that amount just for Chicago to pay the bills it owes. Chicago has just $9.9 billion available to pay $48.6 billion in bills. The Windy City came in 74th out of 75 cities studied in the report, only besting New York City’s massive $204 billion debt with a per-taxpayer burden of $71,400.
The city’s financial failings stem from pension promises the city cannot afford to keep. “Chicago’s financial problems stem mostly from unfunded retirement obligations that have accumulated over the years. The city had set aside only 23 cents for every dollar of promised pension benefits and no money for promised retiree health care benefits,” the report notes.
Andrew Biggs prepared a report for The Garden State Initiative that focused on the impact of more retirees than employees.
Nationally, unfunded state and local government pension liabilities remained roughly stable at about $1 billion from 1975 through 1999, but accelerated rapidly in the following two decades, reaching $4.0 trillion in 2020. The combined unfunded liabilities of New Jersey public plans have increased significantly as well, from $58 billion in 2000 to $186 billion in 2019. (page 4)
In summary, federal government figures demonstrate that New Jersey lawmakers promised benefits to employees that were larger than lawmakers were willing or able to fully fund. The New Jersey pension systems instead relied upon returns on risky investments to make up the gap. But, as New Jersey’s investment experience shows, risky investments pay higher expected returns than safe investments precisely because they are risky, even over long periods of time. This leaves only more conventional solutions available, which are both financially and political difficult. All New Jersey pension stakeholders — including lawmakers, public employees and retirees, and taxpayers — must carefully consider how the costs and benefits of pension reforms will be borne. (page 33)
The New York State Common Retirement Fund (Fund) will invest $2 billion in an index focused on reducing the risks of climate change and capitalizing on the opportunities arising from the transition to a low-carbon economy, State Comptroller Thomas P. DiNapoli, trustee of the fund, announced today. This is part of the Comptroller’s Climate Action Plan announced in 2019 and his goal for the Fund of net-zero greenhouse gas emissions by 2040.
The Fund will allocate $2 billion within its internally managed public equity portfolio to FTSE Russell’s Russell 1000 TPI Climate Transition Index (CTI) in connection with the Fund’s Sustainable Investment & Climate Solutions (SICS) program.
Author(s): Thomas DiNapoli
Publication Date: 9 Dec 2021
Publication Site: Office of the NY State Comptroller
State retirement systems in America improved from last year, but are still Fragile.
This an annual report on the current status of statewide public pension systems, put into a historic context. State and local governments face a wide range of challenges in general – and some of the largest are growing and unpredictable pension costs. The scale and effects of these challenges are best understood by considering the multi-decade financial trends and funding policy decisions that have brought public sector retirement systems to this moment.
The financial market volatility over the past 18 months of the COVID-19 pandemic has ultimately been a positive investment climate for institutional investors like state pension plans. And the federal government has provided substantial financial aid to states and municipalities, smoothing over what could have been seismic budgetary shortfalls in some jurisdictions due to tax revenue declines. The combined historically unprecedented nature of these events continues to create an unpredictable environment for state pension plans. However, in this report Equable uses patterns of behavior from the past two decades as a guide to what might happen in the coming decade while also a means to identify areas of concern that should be monitored closely or acted upon immediately.