Pension report confirms magnitude of crisis, recommendations to follow
If not seriously addressed, the state’s pension systems could face insolvency in just five years, according to the results of audits of the pension plans.
At Monday’s meeting of the Public Pension Oversight Board (PPOB) the PFM Group, who was hired to conduct a performance audit of the state’s troubled pension systems, released its Phase 2 report, showing the magnitude of the problem.
The report reveals the pension systems have had a combined $6.9 billion negative cash flow since 2005 as benefits paid to retirees plus program expenses greatly exceeded the funding. According to the report, if this negative cash flow is not corrected, the ability to make payments to current and future retirees is at risk. Under certain circumstances, the pension systems, which are the worst funded in the nation, could become insolvent in 2022, just five years away.
State Budget Director John Chilton told the PPOB the state will have to pay around $700M into the General Fund for the foreseeable future to pay for pension liabilities.
There were many questions among members regarding how the systems got into this state, and the consultants said the largest factor was lack of funding, followed by actuarial assumptions, investments with poor market performance, unfunded cost of living adjustments and investment planned performance.
PFM will reveal Phase 3 of their report, which will address actuarial methods, investment methods, funding and benefit levels and give possible solutions to the pension problem. Chair Joe Bowen, asked if this final portion of the report would be available at the next PPOB meeting to be held on June 26th, and Budget Director Chilton said that that was the target date, but they were still working on the calculations of potential effects and receiving feedback from invested parties.