Funding of Pension Plans Is Weak, G.A.O. Suggests

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WASHINGTON--There are significant weaknesses in the funding of state- and local-government pension plans, including those for teachers, a General Accounting Office study released last week suggests.

The report was quickly attacked, however, by pension officials, who labeled it as unnecessarily alarmist.

The report was released in the form of a letter to just-retired Rep. Edward R. Roybal, D-Calif., who had requested the report from the G.A.O., the investigative arm of Congress.

Some state and local governments have "frequently'' contributed less than the "actuarily required amounts'' to pension plans, the report warns.

Moreover, the study charges, "in some instances'' actuarial assumptions have been changed to lower the required contributions to the plans.

But the G.A.O. investigators said they were "unable to obtain sufficiently detailed and verifiable information'' about Mr. Roybal's concern that state or local governments had removed funds from their pension plans to pay operating expenses.

Mr. Roybal was the chairman of the House Select Committee on Aging until his retirement last week.

'Stoking the Fires'

The G.A.O. report also says an analysis of a 1991 survey of employee-retirement systems in 47 states and Puerto Rico showed most plans were underfunded--meaning that they did not have enough value in their assets to fully cover their pension liabilities.

But Cynthia L. Moore, the Washington counsel to the National Council on Teacher Retirement, said the G.A.O. report "gave a very misleading impression of the health of the teacher-retirement system.''

"I think [the G.A.O.] is stoking the fires unfairly and worrying retirees unnecessarily,'' Ms. Moore said.

The plans are able to meet current obligations, she said, and state and local governments "aren't going to go out of business.''

"Even if they're not 100 percent funded, that's not a sign of any danger,'' Ms. Moore said of the pension plans, adding that the survey average of 85 percent of funded liabilities was a "safe'' level.

By contrast, Michael Kahn, the manager of the education-finance and economics unit at the National Education Association, said his group is concerned about the condition of public pension plans. An 85 percent funding average is "not an acceptable level,'' he said.

More importantly, Mr. Kahn contended, the practice of a state or local government's skipping its pension-plan contribution is especially worrisome and has occurred more often in recent years because of the economic recession and states' fiscal woes.

The G.A.O. report said fully funding state and local government pensions is urgent because a large group of government employees will retire within 20 years.

To meet those obligations, some states may have to resort to increasing the contribution of employees or raising taxes to increase the contribution of government, G.A.O. officials said.

Although federal law protects the rights and benefits of participants in private pension plans, it does not cover employees and retirees participating in state- and local-government pension plans.

Ms. Moore noted, however, that 30 states have specific laws or court rulings that protect employee pension rights.

One section of the G.A.O. report in particular has drawn additional criticism.

In quoting from a 1990 report by a California consulting group, the G.A.O. study singled out the teacher-retirement plans of the District of Columbia, Maine, Oklahoma, and West Virginia and the state-employee retirement plans of Maine and Massachusetts as being in serious trouble.

'Old News' Seen

In response, David S. Wakelin, the chairman of the board of trustees of the Maine Retirement System, said the plan was able to meet all its near-term obligations on time. The level of funded liability has improved from 40 percent in 1988 to 52 percent in 1992, he said.

Oklahoma officials said in a statement that the G.A.O. citation was "old news'' because it did not take into consideration 1992 legislation passed to correct funding problems.

Congressional action on the report appears unlikely in the wake of Mr. Roybal's retirement.

Nevertheless, an aide to the panel on aging said the G.A.O. report reinforced the idea that the public pension plans "need to be watched to insure that there are sufficient assets to cover the growing number of retirees in the future.''

Vol. 12, Issue 16

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