March 12, 2014
Last month, an independent Blue Ribbon Panel convened by the Society of Actuaries released its report with recommendations to improve the financial health of public pension plans. Laurence Msall, president of the Civic Federation, was a member of the panel, along with actuaries, economists, former plan trustees and government and financial experts. Mr. Msall was also interviewed as part of a Brookings Institution report on the lessons from public pension reform in Illinois, New Jersey, Rhode Island and Utah.
Society of Actuaries Blue Ribbon Panel
In April 2013, the Society of Actuaries convened an independent panel of public pension experts with the goal of developing recommendations to strengthen public pension funding. The Society of Actuaries is the largest professional organization of actuaries. Over the following ten months, the group met to discuss strategies, develop surveys and interview pension plan trustees, administrators and actuaries as they worked to develop a final set of recommendations in the areas of:
- Risk measures, analyses and disclosures;
- The role of the actuary in developing funding recommendations; and
- Improving plan governance.
These recommendations were intended to help guide governments and plan trustees to make better plan funding decisions and keep other stakeholders, including the public, better informed of those decisions.
Additionally, the group promulgated three principles that an effective public pension funding program should follow:
- Adequacy, that is a goal of a level of funding that at a minimum provides for benefits if the median expected future investment conditions occur;
- Intergenerational equity, that is fully funding pension benefits over the average future service period of public employees so that future taxpayers do not pay for today’s services; and
- To a much lesser extent, cost stability and predictability. The panel believes that while this is an important concept for government budgeting, it is often in conflict with the other two goals.
The report also explores the recent trends in pension funding and financial condition that have led most, but not all, observers to conclude that many plans are in weaker financial condition than in the 1990s.
The recommendations promulgated by the panel were not intended to assist plans that are already extremely underfunded like those in Illinois. However, they are informed by Illinois’ and other states’ missteps and the panel members believe that if pension fund sponsors and trustees across the nation were to take up the recommendations, it would help to prevent other pension systems from following Illinois into pension crisis. Importantly, the recommendations would ensure that stakeholders have the range of data on risk scenarios that they will need to make better-informed decisions about funding and benefit levels.
Brookings Report on Public Employee Retirement System Reform in Four States
The Brookings Institution, a nonprofit public policy organization based in Washington, DC, released two reports on public pension reform last week. One of the reports uses the case studies of four states’ pension reform efforts to develop recommendations as to how other states can best pursue reform of their own pension systems.
The four states were Illinois, New Jersey, Rhode Island and Utah. As noted above, Civic Federation President Laurence Msall was interviewed for the case study on Illinois. The report’s conclusions include commonsense ideas that the Civic Federation has also promoted. The conclusions were:
- States should make their complete actuarial payment every year.
- A credible and visible reform champion is important.
- Hard, unbiased data on pensions must be collected and disseminated.
- Communication and education of the public and political leaders is crucial.
- Leaders should avoid turning pension reform into an ideological issue.
- It is helpful to demonstrate how pension spending impacts other state spending priorities.
- Reformers should frame pension changes as being a better option than simply letting the funds run out of money.
- Coalition-building and statewide advocacy are key.
- There is no one-size-fits-all legislative strategy.
- Reformers should anticipate and plan for legal challenges.