In June, Congressman Devin Nunes (R-CA) reintroduced the Public Employee Pension Transparency Act (PEPTA). Rep. Nunes has introduced this legislation for the past four Congresses. PEPTA would require state and local public pension plans to disclose their unfunded liabilities to the U.S. Department of the Treasury, but it would require them to calculate their liabilities using the rate of return on U.S. Treasury bonds. This would artificially inflate the unfunded liabilities to much higher levels than what the plans actually face.
The PEPTA legislation would impose unprecedented and burdensome reporting requirements on public pension plans. The federal government has very little oversight of state and local pension plans. These plans are sponsored by the city or state government where they are located. These plans do not receive funding from the federal government, so they are not required to report anything to the federal government. These plans do report plenty of relevant information to the stakeholders in their states.
Perhaps even more concerning than the requirement to unnecessarily report to the federal government is the requirement that these plans calculate their liabilities based on the rate of U.S. Treasury bonds. You may remember from a previous blog post that this idea comes from anti-pension ideologues like Joshua Rauh. Working with independent actuaries, public pension plans determine a discount rate or an assumed rate of return. They use this discount rate to project how much they expect their investments to earn in the decades to come. The average discount rate across state and local public plans nationwide is 7.5 percent, but plans continue to adjust their discount rate as they receive new information from the financial markets. The current long term rate on a 20 year Treasury bond is 2.9 percent. This is dramatically lower than the assumed rate of return of most public pension plans. Forcing public plans to calculate their liabilities using the Treasury bond rate would artificially inflate their liabilities by an astounding amount.
It’s not hard to see what the motivation is here. Politicians and anti-pension ideologues like Rep. Nunes and Joshua Rauh want to eliminate public pensions. They think they can scare politicians into voting to make harmful changes to pensions by making pension plans appear to be in much worse shape than they actually are. Fortunately, supporters of public pensions are fighting back. As soon as Rep. Nunes announced his intention to reintroduce PEPTA, the National Council on Teacher Retirement (NCTR), the National Association of State Retirement Administrators (NASRA), the National Conference of Public Employee Retirement Systems (NCPERS), and other allies circulated a letter detailing their opposition to the legislation. Their efforts are paying off because PEPTA currently only has three co-sponsors in the House of Representatives, much fewer than in previous years. Pension supporters must remain vigilant, though, as Rep. Nunes could try to attach PEPTA to a larger piece of legislation later this year.