Ratings Agencies Express Concern Over Maryland Pension Debt, But Uphold Rating


The major ratings agencies all upheld Maryland’s AAA bond rating this week.

But all three agencies expressed concern over the state’s pension debt. S&P in particular warned that pension liabilities, if not addressed, could lead to a rating downgrade in the future.

From the Maryland Reporter:

Fitch Ratings and Moody’s Investor Services call Maryland’s debt “moderate,” but Standard & Poor’s report says it is “above average.”

Moody’s said “low retirement system funded levels” represent a credit challenge for the state and “failure to adhere to plans to address low pension funded ratios” could make the rating go down.

Comptroller Peter Franchot said Wednesday he was concerned that the legislature would be tempted to cut the state’s pension contribution in order to find money for other programs.

Fitch Ratings noted, “Despite pensions being a comparative credit weakness, the state has taken multiple steps to reduce their burden and improve sustainability over time.”

S&P noted “implementation of various reforms and some improvements in funded ratios,” But it said “the state’s below-average pension funded ratios and annual contributions that do not meet the full [annual contribution] also continue to represent downside risk to the rating.”

The Fitch report can be read here.

The Moody’s report can be read here.

The S&P report can be read here.


Photo credit: Lendingmemo

Former NJ Official: Christie Used Misdirection on Pension Payments in State of State Address

Chris Christie

During his State of the State address last month, New Jersey Gov. Chris Christie made a few remarks defending himself against accusations of short-changing the state’s pension system.

He claimed that he had contributed more to the pension system than any governor in New Jersey history.

That’s not a false statement. But it also doesn’t tell the full story.

Edward Buttimore, formerly of the state’s Attorney General’s Office, penned a column on Tuesday explaining the misdirection.

Buttimore writes:

When Gov. Chris Christie praised himself during the State of the State address for making the largest contributions to the State pension funds of any governor in New Jersey history, that statement was true, but not accurate.

While Gov. Christie has contributed $2.9 billion (if he makes the reduced $681 million payment for FY2015), what he fails to be clear about is that he will have skipped $14.9 billion in required pension payments during the past five years as Governor, according to his own Pension & Health Benefit Study Commission’s Status Report.

Former Gov. Corzine made $2.1 billion in pension payments while skipping an additional $6.4 billion required from 2007 to 2010.

In fact, Gov. Christie’s $14.9 billion skipped pension payments eclipses the $12.8 billion combined missed payments of his five predecessors over a 15-year period from 1996 to 2010. That was a pretty important fact that he omitted from his State of the State address.

For the last three years Gov. Christie has traveled the country congratulating himself for his 2011 bipartisan pension reforms, including prominently mentioning it during his keynote address for Mitt Romney at the 2012 Republican National Convention. He then he failed to follow through on making the required payments.

Read the entire piece here.


Photo by Bob Jagendorf from Manalapan, NJ, USA (NJ Governor Chris Christie) [CC BY 2.0 (http://creativecommons.org/licenses/by/2.0)], via Wikimedia Commons

Virginia Governor Proposes Extra $150 Million Payment to Pension System This Year


Virginia Gov. Terry McAuliffe wants to put an extra $150 million in the state’s teacher retirement fund this year in a bid to reduce the state’s pension contributions in future years.

The extra money would also reduce future pension payments from school districts.

From the Richmond Times-Dispatch:

The proposed payment to the teacher fund would reduce government contribution rates for teacher pensions by 0.35 percentage point beginning in fiscal 2016, according to the Virginia Retirement System in a presentation to the Senate Finance Committee on Tuesday.

The reduced rate would save the state about $10 million and local school systems $15.8 million.

The governor’s pending budget proposal also would accelerate the 10-year payback of more than $741 million in contributions the General Assembly and Gov. Bob McDonnell deferred in 2010 to balance the two-year state budget at the end of the recession.


The teacher retirement plan carries the largest unfunded liability, estimated at $14.3 billion last year using the same methodology as used to calculate the rates. (The unfunded liability of the plan is $11.9 billion, if based on the current market value of system assets, but that method is subject to big swings in market value that would make rates unstable, VRS officials said.)

Local governments pay about two-thirds of the employer retirement costs for teachers, and the state pays the rest. The climb in pension contribution rates — projected to peak in 2018-19 — has put heavy pressure on school system budgets. Next year, for the first time, local school systems will have to show that liability on their books under new federal accounting rules — about $500 million each for Chesterfield and Henrico counties.

The state’s teacher retirement system was 65.4 percent as of June 30.

Kansas Pension Officials: State’s Plan to Delay Pension Payments Could Cost Billions in Long-Run


Kansas Gov. Sam Brownback in December diverted a $58 million payment from the pension system and used the money to plug holes in the state’s general budget.

The governor is seeking to delay more state payments to the pension fund, and is also looking to offset some of the costs by issuing pension obligation bonds.

But pension officials told lawmakers Tuesday that such a decision could end up costing the state between $3.7 billion and $9 billion in the long run.

From the Kansas City Star:

Changes to the state’s pension system proposed by Gov. Sam Brownback could cost Kansas $3.7 billion in the long run, lawmakers learned Tuesday.

The governor seeks to delay payments intended to shore up the state’s pension system to save money in the short term.

The Kansas Public Employees Retirement System faced an unfunded liability of $9.8 billion at the beginning of 2014. The state was on pace to pay it down to zero by 2033 because of reforms enacted during Brownback’s first term.

Instead, Brownback proposed Friday to pay down the unfunded liability more slowly, by 2043, to save money during the ongoing state budget crisis.

“It’s like the mortgage on your house. If you pay less, you’re going to pay longer and you’re going to pay more,” Alan Conroy, the executive director of KPERS, told the House Appropriations Committee.

The delay would increase costs overall by $9.1 billion. But Brownback proposes issuing $1.5 billion in bonds, and the profits from the interest on those bonds would partially offset that cost.

Rep. Kathy Wolfe Moore, a Kansas City, Kan., Democrat, said the state was undoing the progress it had made in reforming the pensions system.

“It costs us $9 billion with a B (to enact the governor’s plan). … So we’re doubling what we have now? We’re doubling our unfunded actuarial liability?” Wolfe Moore said. “We’re going in exactly the wrong direction as far as I can see.”

Kansas PERS was 56.4 percent as of the end of 2013.


Photo credit: “Seal of Kansas” by [[User:Sagredo|<b><font color =”#009933″>Sagredo</font></b>]]<sup>[[User talk:Sagredo|<font color =”#8FD35D”>&#8857;&#9791;&#9792;&#9793;&#9794;&#9795;&#9796;</font>]]</sup> – http://www.governor.ks.gov/Facts/kansasseal.htm. Licensed under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Seal_of_Kansas.svg#mediaviewer/File:Seal_of_Kansas.svg

Do Pension Plans Give Retirees a False Sense of Retirement Security?

broken piggy bank over pile of one dollar bills

At one time, pensions were seen as the safest, most secure stream of retirement income. But the security of pension benefits is no longer rock-solid. That raises the question: do pensions give retirees a false sense of retirement security?

Economist Allison Schrager explores the idea:

Until recently, a pension benefit seemed as good as money in the bank. Companies or governments set aside money for employees’ retirements; the sponsors were on the hook for funding the promised benefits appropriately. In recent years, it has become clear that most pension plans are falling short, but accrued benefits normally aren’t cut unless the plan, or employer, is on the verge of bankruptcy—high-profile examples include airline and steel companies. Public pension benefits appear even safer, because they are guaranteed by state constitutions.

By comparison, 401(k) and other defined contribution plans seem much less reliable. They require employees to decide, individually, to set aside money for retirement and to invest it appropriately over the course of 30 or so years. Research suggests that people are remarkably bad at both: About 20 percent of eligible employees don’t participate in their 401(k) plan. Those who do save too little, and many choose investments that underperform the market, charge high investment fees, or both.

It turns out that pension plan sponsors, and the politicians who oversee them, are just as fallible as workaday employees. We all prefer to spend more today and deal with the future when it comes. Pension plans have done this for years by promising generous benefits without a clear plan to pay for them. When pressed, they may simply raise their performance expectations or choose more risky investments in search of higher returns. Neither is a legitimate solution. In theory, regulators should keep pension plan sponsors in check. In practice, the rules regulators must enforce tend to indulge, or even encourage, risky behavior.

Because pension plans seem so dependable, workers do in fact depend on them and save less outside their plans. According to the 2013 Survey of Consumer Finances, people between ages 55 and 65 with pensions have, on average, $60,000 in financial assets. Households with other kinds of retirement savings accounts have $160,000. It’s true that defined benefit pensions are worth more than the difference, but not if the benefit is cut.

As the new legislation makes clear, pension plans can kick the can down the road for only so long. Defined contribution plans have their problems, but a tremendous effort has been made to educate workers about the importance of participating. (Even if the education campaign has been the product of asset managers who make money when more people participate, it’s still valuable.) Almost half of 401(k) plans now automatically enroll employees, which has increased participation and encouraged investment in low-cost index funds. And now it looks like a generous 401(k) plan with sensible, low-cost investment options may turn out to be less risky than a poorly managed pension plan, not least of all because workers know exactly what the risks are.

Read the entire column here.


Photo by http://401kcalculator.org via Flickr CC License