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Governmental Plan Funding Question


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Guest ERISAQUEEN

Please advise if you are familiar with any state or local law that imposes pension funding requirements on a state or city and the basis for the requirement (e.g. statute, ordinance, or case law).

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You might have to do your own research, but Carol Calhoun has posted some of hers.

http://benefitsattorney.com/index.php

I'm a retirement actuary. Nothing about my comments is intended or should be construed as investment, tax, legal or accounting advice. Occasionally, but not all the time, it might be reasonable to interpret my comments as actuarial or consulting advice.

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Not being a lawyer, I would think that there could be no applicable case law compelling any specific level of funding unless there were a statute, ordinance, or plan provision already imposing such a requirement. So if there is anything out there, it would be a statute or ordinance (the difference being, I presume, whether it was enacted by a legislature or a town/city board).

I recall having seen at least one such statute in the past (applicable to public plans in the state of Georgia, I believe), but I am not sure if that is still in effect.

Always check with your actuary first!

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Please advise if you are familiar with any state or local law that imposes pension funding requirements on a state or city and the basis for the requirement (e.g. statute, ordinance, or case law).

What is the purpose of this question? State laws usually require that local governments make contributions to the state retirement plans in accordance with reasonable actuarial assumptions but the state legislature can and does suspend ths requirement at its own descretion when governement revenues decline. See IL and NJ as examples. ILs plan is only about 50% funded. NJ has suspended local government contributions to the state's retirement plans for the last three years and this year the state suspended the required $3B contribution. NY is doing something even goofier. It is allowing local governments to borrow from the state pension plan at 5% interest in order to make their mandatory contributions to the state retirement plan which are assumed to earn 8%. In other words pension funding for government plans is totally elastic-the state can suspend contributions at any time.

Also funding requirements for state pension plans are irrevalent in those states where public pension benefits are guaranteed under state law or the state constitution, e.g., NY has a constitutional provision requiring the state to pay government pension benefits. If there are not enough assets in the plan the state would have to raise taxes to pay benefits. In AK there was a case that prevented the state legislature from reducing pension benefits paid to retirees. Of course the state legislature could always increase funding by raising employee contributions to the plan.

mjb

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Pennsylvania, which has about 3,000 of the 9,000 public pension plans in the US, enacted a statute outlining the funding requirements for all municipalities with DB or DC plans. (Act 205 of 1985)

What good is the funding statute when the Gov and the democractic legislature are reportedly trying to pass legislation that would defer taxpayer contributions to the PSERS and SERS retirement plans that will cost $52B?

mjb

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