Latest News, WVPA Sharing

Delegate: Refinancing pension plans could save state $90M a year


Bluefield Daily Telegraph

CHARLESTON, W.Va. — A Kanawha County delegate says refinancing or rescheduling pension plans could save the state up to $90 million a year and is something he wants to be up for discussion.

House Finance Chairman Delegate Eric Nelson, R-Kanawha

House Finance Chairman Delegate Eric Nelson, R-Kanawha, said this is one of many things on the table but said lawmakers will still not forget the obligation to current and former state employees.

He said of the $4.5 billion in general revenue, $550 million is dedicated to pension payments, representing about 12 to13 percent.

“All I’m saying is the possibility of cutting back by 10 percent, maybe 15 percent to save us money right now,” he said.

Nelson compared this to refinancing a home. The state has a 40-year payment plan and has 18 years remaining on the payout, he explained. He said if the state were to extend it another 12 years, it could save $70 million to $90 million a year.

“It’s on the table with this chairman,” he said. “It’s something a lot of people have talked about. If you look at a lot of areas, pensions — no one has touched at all. The pension committee will be looking at it closely, too. There will be more to come, hopefully sooner rather than later.”

In their Monday meeting, members of the Joint Standing Committee on Finance heard a 50-state overview and comparison report from The Pew Charitable Trusts.

The report conducted research gathered since 2007 and included national trends on public pensions and retiree benefits relating to funding, investment, governance and employee preference.

The report said nationally, there is a $1 trillion gap between pension liabilities and assets on hand to pay for benefits. This comes to an aggregate funded ratio of 72 percent as of 2015, the report said.

Katie Selenski, state policy director of the organization, said West Virginia is the “poster child,” mentioning a dramatic rebound from 2000 when the state was just 46 percent funded.

“Just 15 years later, it is 77 percent funded, which is above the national average of 72 percent,” Selenski said.

She said the drivers of improvement break down to two things — the tobacco settlement funds that infused the system with additional cash and a strong level dollar contribution policy. She said the state committed to funding in the mid ‘90s and “really stuck to it.”

In 2014, the state ranked first for contribution adequacy and third in 2015.

She said West Virginia started with what she called a massive gap between assets and liabilities but slowly started to improve.

“The state started way behind in pension funding,” she said. “It was a big gap to overcome. It takes lots of time and discipline and to a large extent, you have done a good job of getting there.”

West Virginia also was one of 15 states that achieved a positive amortization in Fiscal Year 2015, Selenski said. She explained that this is a metric to analyze how well the state’s contribution policy chips away at actual pension liability. West Virginia was 9 percent in 2015, which ranked third among all states behind Louisiana and Alaska.

“You’re doing just about as well as you can be doing on having an effective contribution policy that is paying down your debt,” she said.

She said the way this happened was the way the contribution policy was designed. In 2003, West Virginia ranked 50th but said it made tremendous progress in the 10-year period to rank 27th in 2013. She said the organization is pleased to see this kind of contribution policy in effect and encouraged legislators to continue it.

David Draine, senior officer, talked about the national trend of shifting away from bonds toward stock and alternatives in recent decades. He said the measures of market risks are at all time highs.

“You need to think about the balance returns of risks and costs, knowing that there is no answer that doesn’t involve some tradeoffs,” he said.

He said because of the unpredictability of investing, the agency recommends the use of “stress testing” to evaluate funding policy requirements and to provide lawmakers with information to better measure and manage cost uncertainty.

Overall, 50 percent of pension assets are in equities with about a quarter in fixed income and a quarter in alternative investment, he explained. West Virginia is slightly higher in alternatives and equities.

“The real thing to take away here is that while state pension plans tend to have practices in place to manage risks, in markets driven by ups and downs of markets, there are variations in investment that reflect in assets and ultimately in funding levels and contributions,” he said.

He said with returns falling short of investment potential, lawmakers should be aware of what to do with state funding and employee contributions to reduce risks. One way to reduce risk, he said is to contribute more during good times to create a cushion for the bad times. He said the state can also modify investment return targets or asset allocations or change the benefit plan design.

He said the state is among the top for putting aside money to pay down the principal and is above the average rate for return that is typical of what they see.

Nelson asked what kind of wiggle room the body has in payments over the next few years.

Draine said West Virginia is one of the strongest in paying down the principal, but added that reducing contributions in the short-term however, isn’t a matter of if they pay but when they pay and would push those costs to the future.

“West Virginia has shown tremendous progress in what it’s done. … As long as the plan that gets committed to is stuck with, you don’t want to take one step forward and then two steps back. That’s where states get into trouble. Sticking with the plan is what got West Virginia the progress that it made.”

See more from the Bluefield Daily Telegraph

Comments are closed.

Subscribe to Our Newsletter

Subscribe to Our Newsletter

And get our latest content in your inbox

Invalid email address