Dec 21 header
  • Mort Reinhart
  • Value of State Pensions Funds has Risen in the Past Few Years 


    Some of the gloom and doom that has described the solvency of the State’s pension system has been lifted in the past few years through a combination of yearly contributions by the State and by hefty investment returns generated by the roaring stock and bond markets. Three financial features showed extraordinary results in the past fiscal year: the value of the assets of the fund grew close to $100 billion; the investments returned 28.63%; and the State contributed $6.9 billion to the fund, 100% of the actuarially determined amount. By all measures, it was a superior year for the pension system.

    On the other hand, let’s understand that for many years the funded status of the system has been described in negative terms, such as “one of the worst systems in the nation.” A major reason for this and other similar derogatory descriptions has been a twenty-five year period during which the State annually did not make the full amount of the employer’s contribution as determined by the system’s actuary. Failing to contribute the full amount determined by the actuary increased the future debt of the system and resulted in the need for larger employer (State and local) contributions in ensuing years. Unless the State continues to make the full contribution each year as determined by the system’s actuary and/or the system generates significant investment returns, the system will not be able to meet its obligations to those already retired or it will be required to reduce the pensions and benefits that are promised to future retirees.

    In fact, because of the failure to properly fund the pension system for the past twenty-five years, several major reductions have been instituted, the most serious affecting people already retired whose cost-of-living adjustment was suspended. This feature of the system had been provided to all retirees from the mid-1900s until 2007. However, because of the fiscal difficulties, it was suspended in 2007 with the promise to reinstate it when the funded status of the system reached 75%. With the current funded status of the Teacher’s Pension and Annuity (TPAF) and the Public Employees’ Retirement System (PERS) well below that mark, it will take many years before the 75% figure is reached. Meanwhile, retirees have seen their pensions and already granted cost-of-living frozen and their purchasing power eroded by inflation. Other reductions traced to the continuing shortfall were the need to establish four new levels (tiers) of benefits starting in 2007 for newly hired employees. Each time a new tier was created (2007, 2008, 2010 and 2011), employees hired after its establishment were enrolled in a system providing lesser retirement benefits and a later retirement age.