hot topic | STATE PENSIONS
State Pension Systems on the Rebound by Jennifer Burnett Things are starting to look up for state pension systems. “Conditions affecting public pension plans continue to improve,” said Keith Brainard, research director for the National Association of State Retirement Administrators. That’s good news following years of warnings about the sustainability of state public pension systems. A Pew Center on the States 2010 report warned of a $1 trillion gap between what states had set aside for pensions and the real price tag for those benefits. Economic conditions in general have been improving, especially on Wall Street, which is closely tied to the financial health of public retirement systems. Corporate stocks and bonds make up more than half of all cash and investment holdings for state and local public
employee retirement systems. But the improved health of pensions isn’t just because investment markets are on the rebound; states have taken decisive action that also has helped the ailing systems. “States have taken on some major reforms over the last few years,” said Brainard. Those reforms include higher employee contributions, a higher age or more years of service to qualify for retirement, and reductions in cost-of-living adjustments, or COLAs, for future or existing public employees.
Making Changes
Rhode Island employed many of the strategies Brainard cited in a complete overhaul of its pension system this year. It had taken three previous attempts during the past six years to
get its pension house in order, Richard Licht, director of Rhode Island’s Department of Administration, said during a session at The Council of State Governments’ 2012 National Leadership Conference. “We set out saying we’re going to do this comprehensively and (it is) the last time, hopefully, we ever have to do it,” said Licht. The big changes took leadership, he said. The governor, treasurer, house speaker and senate president all made important contributions. While there were some disagreements, “there was a commitment to collaborate to get it done,” Licht said. “This can’t be done from the bottom up,” he said. “This was a top down effort.” Among the actions Rhode Island took to transform its pension system, the state:
© Corbis/Bruno Budrovic
2010 was the first year that public pension systems have shown positive earnings since 2007, just before financial markets—and public pension assets—took a dive. State and local public employee retirement systems held $2.7 trillion in total cash and investment holdings in 2010, a $257.2 billion, or 10.6 percent, increase over 2009. Those retirement systems saw a $722.2 billion loss in 2009 and a $178.8 billion loss in 2008.
CAPITOL IDEAS
»
JULY / AUG 2012
20
