June 2008

The Legislature met during the final week of June in an extraordinary session to address the pension reform issue that, quite simply, could not wait another year for resolution. Public pensions were facing a $27 billion unfunded liability which is about three times our annual budget, and the gap between what was in the pension fund and what should have been in it was increasing every year, threatening state, city, county and school budgets.

And, although we were able to pass HB 1 in the minimum five days required to pass legislation, there is still much to be done to control costs and slow the growth of the unfunded liability.

One of the main features of HB 1 is a requirement for the General Assembly to contribute an increasing percentage of the Actuarial Recommended Contribution (ARC) to the Pension Fund over the next 17 years, so that, by 2025, the state would be contributing 100% of the ARC. The state pension systems are funded by employee and employer contributions as well as investment returns. The ARC represents the employer contribution.

Another key point of HB 1 is a requirement for all new non-hazardous employees to contribute 5 % of their pay towards their pension and 1% for health care. Also the benefit factor will increase the longer employees work, and they must work longer to receive full retirement benefits. Cost of Living Adjustments (COLAs) will be limited to 1.5% per year for current employees and retirees, but the General Assembly can increase that if it prefunds the cost.

It’s important to understand that, even with these reforms, when the General Assembly fully meets the ARC schedule in 2025, our unfunded liability will be even greater than it is now.

That’s why it is important to keep reforming the system so that it more closely resembles the private sector pension system. HB 1 is a critical first step, but it’s not the final solution. It just means “we will be falling behind more slowly,” according to Senate President David Williams.

Posted on July 5th, 2008 by Jack
Filed under: Jack in the Community