Ohio, New Hampshire, and Tennessee significantly improved their public pension funding in Fiscal Year 2013, as measured by Truth in Accounting metrics.
However, it’s important to determine how and why these improvements occurred. Whether states contributed more money to their pension funds, adjusted benefits to decrease their liability, or achieved the improvements by some more arcane means will help lawmakers determine how best to fix their pension systems.
In Ohio, the underlying answer is quite simple. The state passed a law changing future benefit and contribution structures. Ohio’s pension liabilities decreased from $11.51 billion in 2012 to $8.94 billion at the end of 2013.
Those liabilities are now below the 50-state average of $11.7 billion. Between 2009 and 2012 Ohio’s pension liabilities grew from $5.75 billion—below the 50-state average—to $11.51 billion, above the 50-state average .
The other two states’ stories are more complicated, however.
Digging for Answers
Truth in Accounting (TIA) analyzes each individual retirement plan in every state, a total of518 plans. When a state is one of several employers participating in the plan— a “multi-employer” plan—TIA calculates only the state’s share of the liabilities.
In both New Hampshire and Tennessee, new information surfaced regarding the multi-employer pension plans, requiring recalculation of the state’s liability.
Those states reported information that had not been reported in past reports, and that information showed that earlier estimates of the value of liabilities were incorrect — the “anomalies” referred to in an above paragraph had obscured obligation reductions and debt payments, as teasing out the public share of a multi-employer plan is a complicated process.
The new information showed that liabilities were being reduced (NH) and debt was being paid off (TN), as opposed to their earlier calculations of increasing debt.
Setting an Example
The successes realized by Ohio and other states have clear lessons for lawmakers in states that still have pension problems. States should modernize their reporting so citizens can easily understand their state’s pension conditions without needing professional accountants to dig through footnotes and external actuarial reports or requesting additional data from state fiscal officers.
Worthwhile improvements would include prominently reporting the state’s share of the multi-employer pension and retirees’ health plans’ unfunded liability on the state’s “balance sheet.” Other cosmetic reforms that many believe would enable real change include the disclosure of historical and present state contributions to every retirement plan, and including government’s share of the Unfunded Actuarially Accrued Liabilities (UAAL) of all pension and retirees’ health plans in the plans’ actuarial report or Comprehensive Annual Financial Report.
Only when citizens and elected officials have truthful, timely, and transparent information about their state finances can they develop and assess alternatives to budget pressures between pension contributions and current services.
Donna Rook ([email protected] ) is president of StateDataLab.org, a project of Truth in Accounting.