For many of Americas underfunded public defined benefit systems, theres no painless path forward only pain now or pain later. And despite a few standout examples of the pain later camp, a growing number of plans have toughed out reforms aimed at long-term survival. But some states have gone farther, creating dedicated funding sources or rainy-day funds, which have been picking up steam this year.
Since the 200809 financial crisis, officials at U.S. state and municipal pension funds as well as lawmakers have had to work harder to provide the retirement benefits promised to teachers, firefighters, police, and other public service workers.
Were seeing more and more communities take steps to protect public pensions, and its a trend that has largely fallen under the radar, says Bailey Childers, executive director of the National Public Pension Coalition. Most public pension funds have increased employee and employer contributions to help counteract the hit of U.S. equity markets 40 percent drawdown during the crisis.
Among those steps: establishing dedicated funding sources, such as revenues from gambling or so-called sin taxes (on cigarettes and alcohol, for example). The Kansas legislature kicked things off in 2012, when it approved legislation allowing gaming revenues from state-owned casinos to be directed to the Kansas Public Employees Retirement System, along with proceeds from any sale of state surplus real estate. The following year, Montana legislators approved a bill dedicating a portion of the coal extraction tax to the states unfunded pension liabilities.
In 2013 the state of Oklahoma created the Oklahoma Pension Stabilization Fund, to be used when any of the state pension systems funding ratios fall below 90 percent. A dedicated portion of sin taxes and lottery proceeds will fund this asset pool. And in April, to pay for cost-of-living adjustments and shore up overall funding status, Oklahoma Governor Mary Fallin (a vice chair of president-elect Donald Trumps transition team) signed legislation to protect contributions beyond one-fiscal-year horizons.
In Louisiana, voters have approved the Revenue Stabilization Trust Fund, which will be funded by recurring mineral and tax revenues. Hawaiian taxpayers approved a constitutional amendment to include unfunded pension liabilities in the existing list of possible recipients of general fund surplus money.
Weve seen a lot of improvement in the past few years, says Keith Brainard, research director of the National Association of State Retirement Administrators, pointing to the $150 billion increase in total public pension assets from September 2015 to September 2016. Last year state and local government systems paid out $250 billion to 10 million retirees and other beneficiaries.
Along with creating new sources of pension funding, states have been engaged in other activities to secure promised retirement benefits for their employees. To ensure that plan members receive their retirement benefits, state and municipal pensions most recently have had to push back against efforts to close their defined benefit funds and move both new and existing participants into defined contribution plans, says Childers.
For all of Oklahomas proactive pension protection, a 2016 bill sought to eliminate health insurance for teachers and the required funding of the Oklahoma Teachers Retirement System, among numerous other changes. The measure was defeated, as was a similar one in Indiana that would have allowed members of the state Teachers Retirement Fund, who contribute to the pension fund, to opt out of the system in favor of a 401(k) fund.
Another means to bolster public pension benefits is for smaller municipalities to join the larger state system. This also allows for portability of benefits should a member move to a job in another part of the state. In Wisconsin last year, the state legislature approved a bill to allow the nine cities excluded from the Wisconsin Retirement System to enter the fold.
Its not unusual for a statewide retirement system to allow new employer members, says Brainard. The Texas Municipal Retirement System, he notes, covers 830 employers and takes new ones every year.