Local taxpayers and officials, not state lawmakers, should have jurisdiction over local retirement systems for the sake of accountability, transparency, and good governance. That was the message coming from Talmadge Heflin, Director of the Center for Fiscal Policy, at today’s House Committee meeting on Pensions, Investments, and Financial Services.
Over the years, public employee groups in some of the state’s major metropolitans have successfully lobbied the state legislature to codify their pension plans in state law, making it all-the-more difficult for local communities-whatever their fiscal circumstance-to make any meaningful changes to these plans. And without these much-needed changes, the health of many of these systems has come into question.
The combined unfunded liability, or the difference between promised benefits and the assets on hand to pay for those promises, of these plans as of March 2011 was $4.6 billion. The additional tax increases that will be needed to make up this funding gap are big.
In addition, 4 of the 11 retirement systems were shown to be “actuarially unsound” since their funding ratio, or assets to liabilities, rated below the 80 percent mark, a threshold deemed critical by actuaries. And another four of these retirement systems had ratios within just a few percentage points of this limit, meaning they are potentially at risk if another economic downturn develops.
Fortunately, the solution to improving the health of these systems is relatively straightforward: remove these retirement systems from state law and return control back to local communities so that they can decide whether to make any changes or to increase funding for them locally.