At least 24 public pension funds have cut benefits this year as fallout from the financial crisis continues to affect their plans' stability.
The plans have been plagued by decreased funding levels due to asset drops at the same time that costs are increasing because of factors such as retirees living longer, said Keith Brainard, research director of the National Association of State Retirement Administrators.
“They simply couldn't invest out of it,” he said. “Something else has to change: lower benefits or higher contributions.” The association conducted a survey in May of changes made by public retirement plans this year.
In some states, like Colorado, the impetus for change came from the pension fund itself. Officials of the $35.4 billion Public Employees' Retirement Association in Denver launched an 18-month town-meetings program to convince employees and retirees that their benefits must be cut.
In other cases, politicians were behind the changes. Illinois lawmakers pushed through a bill reducing benefits for new participants in the state's five pension plans as rating agencies threatened to reduce Illinois' bond rating over concerns of unfunded liabilities. The bill moved through both houses of the Legislature in just 12 hours, leaving both union and pension fund officials wondering what had happened. Several weeks later, Gov. Pat Quinn signed the bill into law.
“The changes were driven by the governor and the Legislature,” said William Atwood, executive director of the $13.1 billion Illinois State Board of Investment in Chicago, which has fiduciary responsibility for managing the pension assets of the General Assembly Retirement System, the Judges' Retirement System of Illinois and the State Employees' Retirement System of Illinois.