As many states grapple with massive unfunded pension liabilities, some are looking into transferring government-owned assets to their pension plans as a way to boost funding. And while asset transfers such as these could present issues of their own, more public pension plans are likely to explore this avenue.
"There's a depth where some governments find themselves in where they're so deep in the hole on underfunding that you cannot credibly tax your way out, you can't cut your way out and you can't grow your way out," said Michael Imber, a managing director at EisnerAmper LLP, an accounting firm based in New York. "Short of defaulting, the only way that I think you can change the math is if you start contributing hard assets."
Illinois, New Jersey and Connecticut — states that face perpetual funding issues — are publicly looking into transferring assets to their pension plans, while a few other states will likely follow soon, sources said.
Mr. Imber sits on Connecticut's Pension Sustainability Commission, which was created in 2017 and tasked with studying "the feasibility of placing state capital assets in a trust and maximizing those assets for the sole benefit of the state pension system," according to the state website. Connecticut Gov. Ned Lamont has proposed legislation that would restructure the state $18.7 billion Teachers' Retirement Fund and create the TRF Special Capital Reserve Fund, which would initially be funded with $381 million out of the state's current year general fund surplus and provided with a backstop funded by lottery proceeds.
In February, Illinois Gov. J.B. Pritzker created the Pension Asset Value and Transfer Taskforce to examine state assets and recommend how they can be used for the pension funds to help stabilize the state's finances.
Illinois' five state pension plans have a $134 billion unfunded liability. During a speech last month, Illinois Deputy Gov. Daniel Hynes likened the state pouring billions of dollars into its pension system in recent decades, while seeing its unfunded liability continue to grow, to the ancient Greek mythology of Sisyphus, who continually tried pushing a boulder up a mountain only to have it repeatedly roll back down.
In New Jersey, Treasurer Elizabeth Maher Muoio put out a request last month for qualification for financial advisory firms to help the state determine if certain state assets — such as roads, transit facilities and airports — could be used to help finance the $70.9 billion New Jersey Pension Fund, Trenton.
"While the idea of maximizing the value of state assets has been discussed for many years, little concrete action has ever been taken," Ms. Muoio said in a statement. "At the direction of the governor, we designed this RFQ to explore tangible, creative solutions to help maximize the state's assets in order to minimize the burden to taxpayers."