Pension Fund Weakness Isn’t the Norm, Group Official Says

SAN ANTONIO — The federal relations director for the National Council on Teacher Retirement here Monday defended state and local retirement funds, saying most are well-funded and that alarmists have whipped up an unsubstantiated controversy over pension funds.

Speaking at the Government Finance Officers Association’s annual conference, Leigh Snell said many funds have seen their liabilities decline as governments have furloughed or fired workers.

Many of the allegations aimed at public pensions are “scare tactics” and focus only on the weak pension programs—– a minority of the whole, he said.

“We’re not about to run out of money,” Snell said. “That’s simply not the truth.”

Pension contributions represent a small portion of government spending, according to Snell. Additionally, two-thirds of assets have bounced back following the recession as stock prices have rejuvenated, he said.

Pension “smoothing” accounting methods, which usually average investment returns over a number of years to even out volatility, have delayed the impact of the bounce-back in stocks, he said.

States’ long-term funding needs should not be confused with their immediate costs, Snell said. Unlike most corporate pension plans, which are required to be fully funded at all times, market participants have said they consider public pensions adequately funded at 80%.

Still, state and local governments are making legislative changes to their pension funds to reduce costs. Last year, 21 states passed laws to reform their pension programs, according to the National Conference of State Legislators. The changes include increasing the retirement age, or requiring a greater contribution from new workers.

Some troubled pension programs are looking to cut benefits for active participants. A handful of states and localities are challenging their pension obligations in court in an effort to reduce costs.

Detroit’s two pension funds in April filed a lawsuit against Michigan Gov. Rick Snyder over a law he signed that gives the state broad powers to intervene in and govern fiscally distressed cities, including the ability to replace all pension fund trustees.

In these cases, “the jury is out,” Snell said, and “it will be very interesting” for the future of pension plans to see how the courts rule.

Some pensioners may already be reacting to the risk that their pension benefits could be cut. The number of pensioners accelerating their retirements has increased, said Elizabeth Kellar, president and chief executive of the Center for State and Local Government Excellence, citing a survey conducted earlier this month.

The acceleration in retirements represents a stark shift: just a few years ago during the economic downturn, 85% of retirement-eligible employees were postponing retirement, Kellar said.

She said the healthiest public pensions have been realistic about their investment returns, have an appropriate retirement age and are not deferring pension payments.

It was a mistake for some governments to say “that employees can have it all at no cost,” Kellar said.

Some governments are considering taking a holiday from making a pension contribution in fiscal 2012 as they face wide budget gaps. In San Jose, lawmakers are considering reducing the annual pension contribution in an effort to stave off police and firefighter layoffs.

The panelists said it is important that elected officials understand the risk of deferring or reducing pension contributions for a year.

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