GAO confirms pensions are a problem

March 4, 2012

The GAO recently released its study on the state of municipal and state pensions. The federal agency found that most pension plans face challenges over the long term due to the gap between assets and liabilities.

In the past, some plan sponsors have not made adequate plan contributions or have granted unfunded benefit increases, and many suffered from investment losses during the economic downturn. The resulting gap between asset values and projected liabilities has led to steady increases in the actuarially required contribution levels needed to help sustain pension plans at the same time state and local governments face other fiscal pressures.

This is where the City of Pensacola finds itself. Despite warnings from the IN and others, the old city administration and the city council refused to deal with this. Mayor Ashton Hayward appointed an advisory group to make recommendations, which will be presented to the council this week.

The GAO found that since 2008 the combination of fiscal pressures and increasing contribution requirements has spurred many states and localities to take action to strengthen the financial condition of their plans for the long term, often packaging multiple changes together.

GAO’s tabulation of recent state legislative changes reported by NCSL and review of reforms in selected sites revealed the following:

• Reducing benefits: 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced postretirement benefit increases for all members and beneficiaries of their pension plans.

• Increasing member contributions: Half of the states have increased member contributions, thereby shifting a larger share of pension costs to employees.

• Switching to a hybrid approach: Georgia, Michigan, and Utah recently implemented hybrid approaches, which incorporate a defined contribution plan component, shifting some investment risk to employees.

Some states and localities have adjusted their funding practices to help manage pension contribution requirements in the short term by changing actuarial methods, deferring contributions, or issuing bonds, actions that may increase future pension costs.

The GAO believes that growing budget pressures will continue to challenge state and local governments’ abilities to provide adequate contributions to help sustain their pension plans.

The Pensacola City Council will finally be forced to deal with its pension. It’s a shame that those who created this mess are long gone….getting nice pension checks every month.

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