Deputy Assistant Secretary Grippo and Director Hiteshew Email
July 17, 2014
Dear Deputy Assistant Secretary Grippo and Director Hiteshew,
The member associations of our Public Pension Network would like to thank you for taking the time to meet with us to discuss Treasury’s new office of State and Local Finance, and to share with us some information regarding its broader mission, insights, and potential future work plan. We hope the meeting was informative, and we encourage a continued dialogue between your office and our associations. In addition, we would like to offer the expertise of our members as your office moves forward with its work in the pension arena. These individuals have different professional backgrounds and perspectives and can provide well-informed, balanced insights and information.
As we noted during the meeting, our associations believe that pensions are an integral component of cost-effectively managing a workforce that delivers essential public services, as well as meeting state and local government retirement security policies. State and local governments take seriously their responsibilities to accumulate the resources needed to pay promised benefits to their employees and retirees. Employers with well-funded pension plans have taken a long-term approach to estimating investment returns, adjusting their demographic and other assumptions as needed, and consistently paying their actuarially determined contributions each year. On average, the portion of combined state and local government spending dedicated to meeting their pension funding obligations is around five percent. In those cases where there are legitimate concerns about underfunding, the possible solutions are not black and white, but rather, vary widely from state to state and plan to plan, with each having its own unique road to recovery.
For these reasons, state and local governments, often in cooperation with their retirement systems and employees, continue to implement measures to ensure the long-term sustainability of their individual retirement systems, taking into consideration the needs of the taxpayers, employees and retirees, and the government. Forty-nine states and numerous local governments through their state and local legislative and regulatory processes have enacted major changes in their retirement plans from 2009-2013. These changes have included increases in employee contributions to pension plans, longer vesting periods, increased risk-sharing and other hybrid features, reduced benefit levels, higher retirement ages and lower cost of living adjustments. Asset allocation strategies are also being reviewed to ensure that public plans consistently follow prudent investment practices, maintaining a focus on the long-term, and investing in new asset classes to diversity risk, not increase it. Significantly, these changes were instituted and executed without the need for any federal intervention. Indeed, such flexibility and a willingness to make changes is a hallmark of the history of public pensions – from the move to prefunding from pay-as-you-go, to the incorporation and active promotion of deferred compensation plans as important supplements to traditional pensions.
Finally, it should also be recognized that public pension dollars help the economy of every jurisdiction. Public employees live in every city and county in the nation; more than 90 percent retire in the same jurisdiction where they worked. The over $200 billion in annual benefits distributed to more than 8 million Americans from pension trusts are a critical source of economic stimulus to states and localities, and act as an economic stabilizer in difficult times. Recent studies have documented that public retirement system pension distributions annually generate over $73.4 billion in federal tax revenue, more than $59.7 billion in annual state and local government tax revenue, and provide a total economic impact of more than $1 trillion.
State and local government retirement systems have weathered numerous market declines in the past, and continue to work with affected stakeholders to do so once again. We look forward to working with your office to provide accurate information about state and local government retirement plans.
To assist you in this regard, we have attached links to several important research reports. Please feel free to reach out to any of the contacts below with questions or for additional information.
Barrie Tabin Berger, GFOA Barry Kasinitz, IAFF
Cornelia Chebinou, NASACT Don Marlais, LGV&A/CalPERS Elizabeth Kellar, ICMA/SLGE Ilana Boivie, CWA
Jeannine Markoe Raymond, NASRA Leigh Snell, NCTR
Marc Granowitter, AFSCME Melissa Nee, NAPO
Michael Belarmino, NACo
Neil Bomberg, NLC
Peter Barrett, NAST
Tony Roda, Williams & Jensen/NCPERS
Are City Fiscal Woes Widespread? Are Pensions the Cause? Center for State and Local Government Excellence
Gauging the Burden of Public Pensions on Cities, Center for State and Local Government Excellence
The Funding of State and Local Pensions 2013-2017, Center for State and Local Government Excellence
How to Public Pensions Invest? A Primer, National Institute on Retirement Security
On the Right Track? Public Pension Reforms in the Wake of the Financial Crisis, National Institute on Retirement Security
The Great Recession: Pressures on Public Pensions, Employment Relations and Reforms, National Institute on Retirement Security
Pensionomics 2012: Measuring the Economic Impact of DB Pension Expenditures, National Institute on Retirement Security
Lessons from Well-Funded Public Pensions: An Analysis of Six Plans that Weathered the Financial Storm, National Institute on Retirement Security
Shared-Risk in Public Retirement Plans, National Association of State Retirement Administrators
State and Local Government Spending on Public Employee Retirement Systems, National Association of State Retirement Administrators
Public Pension Plan Investment Return Assumptions, National Association of State Retirement Administrators
Employee Contributions to Public Pension Plans, National Association of State Retirement Administrators
Cost-of-Living Adjustments, National Association of State Retirement Administrators
Plight of Public Pensions Not So Ominous, as Funding of Most Plans Expected to Improve, National Association of State Retirement Administrators