The National Conference on Public Employee Retirement Systems couldn't disagree more strongly with Pensions & Investments' conclusion that public pension plans should adopt the recent recommendations of an ad hoc panel of the Society of Actuaries (Editorial, A pathway to stronger plans, March 3).
We do commend the panel on its acknowledgement that full, 100% funding of public pension plans is always a desired target and that for that goal to be accomplished, plan sponsors must consistently make their annual actuarially required contributions.
Unfortunately, our agreement with the panel's findings stops there.
In fact, we are unclear why the SOA established this panel in the first place. The panel seems to draw heavily from what the SOA knows best the private-sector experience and seems intent on pushing the private-sector mentality into the public-sector workspace. This is not appropriate as noted by the Governmental Accounting Standards Board and other organizations. Public-sector entities and private-sector entities have completely different bases for existence, and that requires a separate way of doing business. The Actuarial Standards Board and the Conference of Consulting Actuaries are both considering the same issues and these organizations actually work with public-sector plans and have experience dealing with these issues.
In its report, the panel admits that public plans come with a variety of issues and concerns yet it insists on forcing all public plans into a single mold with a single reporting element. Forcing every plan into a one-size-fits-all determination does not lead to appropriate use of the numbers. It is inconsistent with the idea of establishing appropriate procedures for individual entities that recognize the unique nature of each one.
The panel's report proposes a new way of handling the investment return assumption yet in the same report, the panel acknowledges that the current set of assumptions are reasonably related to what has happened in the past. Most actuaries develop assumptions by considering not only what has transpired they also consider what is likely to occur in future years. So the panel is advocating for something that is not needed.
Unfortunately, the panel's report offers flawed recommendations based on faulty assumptions. The vast majority of public pension plans are recovering nicely from the Great Recession. The few that are in trouble are in jurisdictions whose legislatures failed to make the actuarially required contributions, even in boom economic times.
The panel rightfully points out that the main problem with plan funding has been jurisdictions' failure to pay the full ARC. Unless plan sponsors make those payments consistently no procedural or accounting changes will produce the desired effect.
Executive director and counsel
National Conference on Public
Employee Retirement Systems