Federal Pension Update Jeff Hurley and Luke Martel September 16, 2013
State Bankruptcy Concerns • Detroit has caused increased exposure and analysis of state and local pensions • Likely hearings in the 113th Congress No Bailout Legislation • Prohibit Federal funding to localities (and/or States) that have defaulted or are “at risk of defaulting” • Federal auditing and assessments of the current and future financial stability of States and/or localities (will surely include pension valuations) • Graham (SC) amendment to FY 2014 Financial Services appropriations • Cornyn (TX) amendment to THUD appropriations • Vitter bill (S. 101)
PEPTA • H.R. 1628 (Rep. Devin Nunes, CA) referred to House Ways and Means 9 co-sponsors • S. 779 (Sen. Richard Burr, NC) referred to Senate Finance 2 co-sponsors
Objectives of Both Bills • Specifies “voluntary” annual reporting requirements for state and local government pension benefit plans • Directs the U.S. Secretary of the Treasury to develop model reporting statements • Directs the U.S. Secretary of the Treasury to maintain a public website where reports will be posted. • What does "voluntary" mean? • Any state or local government that does not submit annual employee pension benefit plan reports is denied tax benefits relating to bonds issued by a state or political subdivision during any period of non-compliance
SAFE Retirement Act Introduced by Sen. Hatch - S. 1270 • Annuity plan for state and local governments • Would effectively turn over pension plans to insurance companies using fixed-annuity contracts • Needed as Congress may be called upon to bail out states
Mandatory Social Security • Old proposal to compel state and local government employee • Applies to new employees • Revenue raiser for federal government • Found in many deficit reduction reports GPO / WEP • S. 896 / H.R. 1795 - Social Security Fairness Act
How do pensions fit into the fiscal debate? • Continued resolution • Sequestration • Debt Ceiling • Tax Reform • Pension pay-fors?
Reasons to develop pension funding guideline • GASB Statement No. 67 and 68 • Moody's proposed adjustments to US public sector pension data - S &P? Fitch? • Federal government pension reporting standards?
Reasons to develop guideline (continued) • To develop recommended standards and practices for public pension funding that are supported by the actuarial community • To identify a method for voluntary compliance with these recommended standards and practices GASB's new exposure draft broke the link between accounting and funding standards. State and local groups wrote the guideline in an attempt to fill this void.
Recommendations • Have a pension funding policy that is based on an actuarially determined contribution • Build funding discipline into the policy to ensure that promised benefits can be paid. • Maintain intergenerational equity so that the cost of employee benefits is paid by the generation of taxpayers who receives services. • Make employer costs a consistent percentage of payroll • Require clear reporting to show how and when pension plans will be fully funded.
Recommendations (continued) A sound pension funding policy should address the actuarial cost method, asset smoothing method, and the amortization policy The most important step for local and state governments to take is to base their pension funding policy on an actuarially determined contribution.
Resources? • NCSL policies • Pension Funding Guidelines • Advocacy letters
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