For most Americans these days, timing is everything when it comes to retirement.
At the moment, it looks like those who recently retired or who are on the cusp of retirement may have picked a bad time to be born. For them, the steep drop in the investment markets caused by the coronavirus pandemic came at just the wrong moment.
History tells us that the markets will recover and that cycles of ups and downs are inevitable. But under a retirement-security system that relies upon individual accounts – 401(k)s – many of those whose retirement coincides with a down cycle will not be around long enough for their savings to fully recover.
There is a way to flatten to curve. They’re called pensions – collective retirement savings systems into which workers of all ages and their employers contribute and which have professionally managed, diversified investments. They are built to withstand the extremes of economic cycles.
Those who receive pension benefits during down times receive no less income. Those who receive benefits during boom times receive no bonus. That’s what flattens the curve.
Regrettably, fewer than 5 percent of private-sector workers today are able to participate in a pension fund.
In the wake of this latest market spiral, one might expect to see renewed public discourse about our national failing to address retirement security. Instead, what we’ve seen so far is a new round of alarmist attacks on public sector pensions.
It is true that public-employee pension funds, including CalPERS and CalSTRS in California, have seen the point-in-time value of their investments decline. Especially given the uncertainty about the ultimate course of this pandemic and its effect on the economy, it is far too soon to tell how deep and long-lasting the effects on markets will be. But the expectation that investments will experience times of negative returns is inherently built into fund planning.
Unlike personal accounts in which short-term timing is everything, what matters for pension funds is the long term. Over the last 10 years, CalPERS’ annual returns have averaged 9.1 percent. Over the last 30 years, it’s been 8.1 percent – and, remember, that 30-year period includes the disastrous financial meltdown of 2008, during which the S&P 500 fell by 44 percent over two years.
For critics to try to sound an alarm about the stability of pension funds based on one or two months of data is not just foolish, it’s irresponsible.
Those critics have been careful to avoid mentioning the significant steps that were taken after the Great Recession to further fortify the pension system: for all employees hired since 2013 benefit formulas have been reduced, retirement ages increased and pensionable compensation capped. In addition, most public servants must pay at least half of the monthly contributions needed to fund their pensions.
Further, the pension funds have also reduced their assumed annual rate of return to guard against overly optimistic projections.
Also ignored by the critics is the fact that the economic benefits of California’s pension funds will be especially valuable as the state recovers from an anticipated recession.
During the fiscal year that ended in 2018, a recent study showed that CalPERS retirees – who, on average, receive about $3,000 a month –collectively generated $23.5 billion in economic activity in California, supporting 137,000 jobs. An earlier study by CalSTRS found that its benefits generate $11 billion in annual economic activity, supporting 92,000 jobs.
That economic driver will continue to provide a boost to California’s economy, especially in smaller communities where the relative impacts are most substantial.
The coronavirus outbreak impacted the late stages of the 154th regular session of the Kentucky General Assembly that ended Wednesday.
The pandemic prompted the legislature to make changes to usual procedures. Lawmakers went from considering drafts of a two-year state budget to instead passing a one-year spending plan, an acknowledgment of the difficulties of making long-term revenue projections amid the economic turmoil of a pandemic. COVID-19 relief bills were quickly drafted and acted upon during the latter part the session.
Legislators gaveled into session for only 53 days — seven days less than allowed by the Kentucky Constitution.
The $11.3 billion executive branch budget, however, will keep steady the basic per-pupil funding for Kentucky schools and support safety measures envisioned when lawmakers approved a major school safety bill last year.
The spending plan, contained in House Bill 352, also provides the full actuarial-recommended level of funding for state public pension systems.
A COVID-19 relief measure, contained in Senate Bill 150, will loosen requirements for unemployment benefits and extend help to self-employed workers and others who would otherwise not be eligible.
It will also expand telemedicine options by allowing out-of-state providers to accept Kentucky patients, provide immunity for health care workers who render care or treatment in good faith during the current state of emergency, extend the state’s income tax filing deadline to July 15, address open meeting laws by allowing meetings to take place utilizing live audio or live video teleconferencing, and require the governor to declare in writing the date that the state of emergency ends.
Additional bills that the General Assembly approved include measures on the following topics:
Addiction treatment: Senate Bill 191 addresses certification and educational requirements for alcohol and drug counselors. The bill also directs Kentucky to establish guidelines employers can use to develop programs to help more individuals struggling with substance use disorders while maintaining employment.
Alcohol: House Bill 415 will allow distillers, wineries and breweries to be licensed to ship directly to consumers — in and out of Kentucky. The bill imposes shipping limits of 10 liters of distilled spirits, 10 cases of wine and 10 cases of malt beverages per month. Packages of alcohol will have to be clearly labeled and be signed for by someone 21 or older. HB 415 will also prohibit shipping to dry territories, communities where alcohol sales are prohibited by local laws.
Eating disorders: Senate Bill 82 will establish the Kentucky Eating Disorder Council. The group will oversee the development and implementation of eating disorder awareness, education, prevention and research programs.
Elections: Senate Bill 2, dubbed the voter photo ID bill, will require voters to present photographic identification at the polls, starting in the general election in November. If a voter does not have a photo ID, they will be able to show another form of ID and affirm, under the penalty of perjury, that they are qualified to vote. The bill also allows poll workers to vouch for a voter they personally know even if that person has no valid ID. Another provision of SB 2 will provide a free state-issued ID card for individuals who are at least 18 and do not have a valid driver’s license. It currently costs $30 for that ID.
Hemp: House Bill 236 will conform Kentucky’s hemp laws to federal guidelines that changed after the passage of the 2018 U.S. Farm Bill. That bill removed hemp from the list of federally controlled substances, which allowed farmers across the nation to grow hemp legally. The bill also expands the number of labs authorized to test hemp for tetrahydrocannabinol (THC), a psychoactive component found in hemp and other types of cannabis.
Human rights: House Bill 2 will require a national anti-human trafficking hotline number to be advertised in airports, truck stops, train stations and bus stations. Posters with the hotline number are currently required in rest areas. The bill also closes a loophole in the state sex offender registry by adding specific human trafficking offenses to the definition of a sex crime.
Senate Bill 72 will ban female genital mutilation, often referred to as FGM, in Kentucky. A federal ban that had been in place for more than two decades was found unconstitutional in 2018. The bill will also make performing FGMs on minors a felony, ban trafficking of girls across state lines for FGMs and strip the licenses of medical providers convicted of the practice. The World Health Organization classifies FGM, a procedure that intentionally alters or causes injury to the female genital organs for non-medical reasons, a human rights violation.
Infrastructure protection. House Bill 44 will strengthen security for critical infrastructure across Kentucky by specifying that above-ground natural gas and petroleum pipelines in addition to certain cable television facilities aren’t suitable areas for drone flights. The legislation also defines tampering with the assets as felony criminal mischief.
Jurors: Senate Bill 132 will add people with state-issued personal identification cards to the pool of potential jurors in the county where they live. Currently, the pool draws from driver’s license lists, tax rolls and voter registration lists.
Lt. Governor: House Bill 336 will let gubernatorial candidates select their running mate for lieutenant governor before the second Tuesday in August instead of during the spring primary campaign.
Marsy’s Law: Senate Bill 15 would enshrine certain rights for crime victims in the state constitution. Those would include the right to be notified of all court proceedings, reasonable protection from the accused, timely notice of a release or escape, and the right to full restitution. SB 15 is tied to a national movement to pass statutes that have been collectively known as Marsy’s law in honor of Marsy Nicholas, a 21-year-old California college student who was stalked and killed by an ex-boyfriend. A similar proposed constitutional amendment passed the General Assembly in 2018 and was subsequently approved by voters, but the Kentucky Supreme Court ruled that the law was invalid due to unconstitutional ballot language.
Now that it has been approved by lawmakers, Kentucky voters will decide on the proposed constitutional amendment this November.
Mental health: House Bill 153 will establish the Kentucky Mental Health First Aid Training Program. The plan would be aimed at training professionals and members of the public to identify and assist people with mental health or substance abuse problems. The program would also promote access to trainers certified in mental health first aid training.
Senate Bill 122 will make a change to Tim’s Law of 2017, a much-heralded law that has rarely been used by the courts. The law allowed judges to order assisted outpatient treatment for people who had been involuntarily hospitalized at least twice in the past 12 months. SB 122 extends the period to 24 months.
Mobile phones: House Bill 208 will require wireless providers of Lifeline federal-assistance telephone service to make monthly 911 service fee payments to the state. It will restore over $1 million a year in funding to 911 service centers.
Pensions: House Bill 484 separates the administration of the County Employees’ Retirement System (CERS) from the Kentucky Retirement Systems’ board of trustees. CERS accounts for 76 percent of the pension assets KRS manages and makes up 64 percent of the KRS membership — but controls only 35 percent of the seats on the KRS board.
Public health: House Bill 129, dubbed the public health transformation bill, will modernize public health policy and funding in Kentucky. It will do this by streamlining local health departments by getting them to refocus on their statutory duties. Those are population health, enforcement of regulations, emergency preparedness and communicable disease control.
REAL ID: House Bill 453 will allow the transportation cabinet to establish regional offices for issuing driver’s licenses and personal identification cards. It also requires a mobile unit to visit every county multiple times per year to issue such credentials. It will ensure Kentucky complies with the federal REAL ID ACT enacted on the 9/11 Commission’s recommendation.
School safety: Senate Bill 8 will require school resource officers (SROs) to be armed with a gun. The measure also clarifies various other provisions of the School Safety and Resiliency Act concerning SROs and mental health professionals in schools.
Sex offenders: House Bill 204 will prohibit sex offenders from living within 1,000 feet of a publicly leased playground. Sex offenders must already follow these standards for publicly owned parks.
Students’ wellbeing: Senate Bill 42 will require student IDs for middle school, high school and college students to list contacts for national crisis hotlines specializing in domestic violence, sexual assault and suicide.
Taxes: Senate Bill 5 will require library boards, and other so-called special-purpose governmental entities, to get approval from a county fiscal court or city council before increasing taxes.
Terms of constitutional offices. House Bill 405 proposes a constitutional amendment that would increase the term of office for commonwealth’s attorneys from six years to eight years beginning in 2030 and increase the term of office for district judges from four years to eight years beginning in 2022. It would also increase the experience requirement to be a district judge from two years to eight years.
The proposal is seen as a way to align terms of service among elected judicial officials so judicial redistricting could be more easily achieved in future sessions. And redistricting is seen as a way to balance uneven caseloads among courts without creating expensive new judgeships.
The proposed constitutional amendment will be decided on by voters this November.
Tobacco: Senate Bill 56 will raise the age to purchase tobacco products, including electronic cigarettes, to 21 from 18. The move will bring Kentucky’s statute in line with a new federal law raising the age to 21. The bill will remove status offenses for youth who purchase, use or possess tobacco, often called PUP laws, and will shift penalties to retailers who fail to follow the increased age restriction.
Veterans: House Bill 24 will support plans to build a veterans nursing home in Bowling Green. The legislation appropriates $2.5 million needed to complete design and preconstruction work for the 90-bed facility. That must be completed before federal funding is allocated to start construction on the proposed $30 million facility.
Most new laws — those that come from legislation that doesn’t contain emergency clauses or special effective dates — will go into effect in mid-July.
Proposed constitutional amendments must be ratified by voters in November before they would take effect.
When the retirement expert Alicia H. Munnell finished gathering data for a study on American workers ages 50 to 62 in jobs without benefits, she was stunned.
“When I looked at the results I thought, ‘This can’t be right,’” Dr. Munnell, director of the Center for Retirement Research at Boston College, said. The study, published in October and titled “How Do Older Workers Use Nontraditional Jobs?,” found that three-quarters of American workers in that age group had positions that fall into the center’s “nontraditional” category — meaning, those without employer-provided retirement plans and health insurance.
Freelancers and consultants of all stripes can fit that definition. So can waiters, artists, yoga instructors and anyone who works part time or whose income is generated by the gig economy (including Lyft or Uber drivers and DoorDash couriers).
“I thought everyone had traditional jobs during their 50s,” Dr. Munnell said. “I was super surprised by it.”
What may be less surprising is the effect these jobs can have on retirement. Depending on how much time workers spent in a job without benefits from ages 50 to 62, they can expect their retirement income to be as much as 26 percent lower than that of people who spent their 50s and early 60s in positions with full benefit packages, according to the center’s findings. It was the first time the center had looked at nontraditional workers in this age group.
Some of these workers, like Mary Jacobs, are somewhat insulated.
Ms. Jacobs is a freelance writer for various outlets, including The Dallas Morning News. Since the coronavirus hit, she has been especially busy.
“One of the subjects I specialize in is seniors, and that’s a demographic that’s really in need of Covid content,” Ms. Jacobs said from her home office in Plano, Texas. “I’ve been doing a lot of writing about the pandemic.”
Ms. Jacobs, 60, started freelancing in 1989. Since 2015, she has freelanced full time. From 2006 until 2013, she was a staff writer at The United Methodist Reporter, a newspaper that shut down. It was the only job that offered her health and retirement benefits since she started writing professionally.
Other Texas organizations she writes for, including a theology school and a seminary, don’t extend benefits to freelancers. And that’s OK with Ms. Jacobs. Her husband, Steve Lavine, owned a market research company and retired comfortably five years ago. When they married in 2009, they combined living expenses, allowing her to increase her retirement savings and buy private health insurance. Mr. Lavine is on Medicare.
Her life would look much different if she weren’t married to someone financially stable, she said.
“I wouldn’t be able to meet my living expenses,” she said. “Sometimes I look at the situation and I think, OK, I have to write five short blog posts just to pay my health insurance. I’d have to find a different kind of work if I were single. I do feel lucky.”
She also knows that other workers her age have reason to feel not so fortunate. Ms. Jacobs chose her nontraditional jobs for their flexibility. Freelancing allowed her to work from home when her children, now 27 and 30, were growing up.
Other workers, like James P. Shelley, felt forced to take nontraditional work in their later years.
“I had some nice jobs with some great benefits,” said Mr. Shelley, 58, a professional résumé writer in Yucca Valley, Calif. “Then in 2006 I hung my own shingle.” Not that he wanted to: “I was 44 years old, and nobody was hiring 44-year-olds.”
Since his 20s, Mr. Shelley had worked as an executive at Southern California health information management companies. He was fired from one firm in his 30s for not meeting sales quotas. A second company let him go in 2005 because it could no longer afford his salary. For decades, he provided his wife and children, now 31 and 29, with health insurance through his employers and made small contributions to company retirement savings plans. Since starting his own business, he has gone without health insurance. His savings have dwindled to zero.
He knows he is flirting with financial disaster. “It worries me terribly,” Mr. Shelley said. Especially the no-savings part. “My Social Security benefits are going to be minimal, and I’m not going to be able to survive on them.”
Health insurance for him and his wife, 52, whose job as a full-time office manager for an orthopedic surgeon also does not offer health or retirement benefits, has been too costly, he said — which makes them especially vulnerable now. Before the pandemic, he said, he didn’t worry too much because his health had been good. Now it’s a much greater concern.
Ms. Jacobs and Mr. Shelley have made careers of their nontraditional jobs, meaning both have spent the bulk of their later earning years forgoing benefits. According to the Boston center’s study, that lands them among the group of future retirees likely to see the highest rate of lost income: Their peers are apt to be 26 percent richer because they won’t have pulled from their own pockets to pay for health coverage or have interrupted the accrual of money in their 401(k)’s or pensions.
Making a career of these jobs also puts them among the majority of workers in those positions, who stay put rather than using them as stopgaps between jobs with benefits or bridges to retirement. Workers who bounced among mostly traditional jobs, with stints at nontraditional jobs in between, had about 6 percent less retirement income, the study found.
“Some people do use these jobs to tide them over between one traditional job and another,” Dr. Munnell said; those workers make up only about 25 percent. Fifty-four percent of the 4,174 respondents in the center’s study stay in their no-benefits jobs for years. Among them are people whose lack of a high school diploma prevents them from securing traditional jobs. Others are in Ms. Jacobs’s position, with a spouse to fall back on.
“For those two groups, there’s some logic in working nontraditional jobs,” Dr. Munnell said. “But a third group — they’re as well educated as the average worker, but they’re solo earners. We don’t understand why they’re there.”
Regardless, they will likely feel the pinch later. “It’s important in the later years of your life to be participating in a retirement program, because typically those are the years when accrual is most significant,” said Dan Doonan, executive director of the National Institute on Retirement Security. “It’s really your last chance to build up a nest egg.”
A January report from the institute found that 40 percent of Americans over 60 draw income from Social Security alone, while only 7 percent pay their bills through a combination of Social Security, a defined-benefit pension and a contribution plan such as a 401(k).
That may be because only about half of U.S. workplaces offer their employees retirement plans, Mr. Doonan said. “Access has been a challenge,” he said.
Yet that access may make the biggest difference when it comes to closing the gap between traditional and nontraditional workers’ retirement income.
“There’s usually a way to pick up health insurance one way or another, through a spouse or the A.C.A.,” Dr. Munnell said, referring to the Affordable Care Act. “But it’s very hard to save on your own. It’s not enough to say, ‘Anybody can go open up an I.R.A.,’ because people don’t do that.”
(Ms. Jacobs is an exception. “I’ve always been a worrier,” she said. “I’ve never been able to sleep if I didn’t have six months of savings in the bank, and I’ve always saved for retirement.”)
The lowest-paid workers may be the most reluctant to try to save for retirement. “There’s a lot of demands on a limited income,” Dr. Munnell said.
Workers like Mr. Shelley, whose business, like the hiring market, has ground down because of the coronavirus, know they are vulnerable. “I believe I have more than 20 years ahead of me, and that I’ll be doing this until the day I die,” he said.
He said he planned to move to a more affordable city when his wife retired and hopes his health holds out, at least until he qualifies for Medicare. “It’s only the catastrophic stuff, like a cancer diagnosis, that I worry about,” Mr. Shelley said.
Dr. Munnell wishes that he and other nontraditional workers were in a position to fret less.
“I was not only surprised, I was also saddened” by the research, she said. “The results mean that people have to worry about getting protections on their own, and that they have very unpredictable work lives.”
DENVER (CBS4) – Gov. Jared Polis has given firefighters and police officers killed or injured in the line of duty more protection.
He signed House Bill 20-1044 which gives the Colorado Fire and Police Association Pension Board more flexibility in adjusting contributions. That in turn makes it easier to help with financial needs those first responders and their families encounter.
It also means contributions to the fund will gradually increase for the next 10 years.
“This legislation will help ensure that the disability and retirement plans are stronger so that those who put their lives on the line for our community can retire with dignity after a career of service,” said Colorado Professional Fire Fighters President Mike Frainier in a news release.
“Now more than ever, Colorado Professional Fire Fighters are on the front lines when our communities need us most. Today, Governor Polis showed his unwavering commitment that Colorado will protect the men and women who protect all of us.”
LOUISVILLE, Ky. (WDRB) – Kentucky lawmakers negotiating the state’s next two-year budget agreed Wednesday to fully fund the Kentucky Teachers Retirement System (KTRS), rejecting the Senate’s proposal to withhold more than $1 billion in funding in exchange for structural reforms to the pension program.
Lawmakers on the budget conference committee are working to put the finishing touches on the biennial spending plan as businesses across Kentucky and the U.S. are reeling from the ramifications of the novel coronavirus pandemic.
In Kentucky, thousands have applied for unemployment benefits as more and more businesses close to in-person traffic as the state tries to limit the spread of COVID-19.
Business has changed at the Capitol as well, with access to the statehouse restricted to legislators, essential staff, credentialed media and invited guests.
The Senate’s version of the two-year spending plan withheld $1.1 billion from KTRS, storing it in the state’s permanent pension fund until structural reforms were made.
KTRS funding in the amount of $551.1 million was at stake in fiscal year 2021, which begins July 1.
If reforms weren’t made by Aug. 1, the Senate’s version of the budget would have transferred that money to the Kentucky Employees Retirement System for state workers in non-hazardous positions, the state’s largest and most underfunded pension program.
That would have meant the legislature would have had mere days to enact such reforms to send that funding to KTRS from the state’s permanent pension fund.
With no opportunity for opponents to voice their concerns with pension bills given the increased COVID-19 restrictions at the Capitol, House members on the conference committee balked at the proposal.
“I don’t think we can have that discussion right now, and I think doing anything less than funding at the actuarially required – not the statutorily required, the actuarially required – (contribution level) is not good policy,” said Rep. Steven Rudy, a Republican from Paducah, Kentucky, who chairs the House budget committee.
“I think all of us can and should agree that fully funding all of our pension systems has got to be paramount as we more forward in these budget discussions,” said House Speaker David Osborne, R-Prospect.
Senate Republicans on the conference committee noted that the onus of structural pension reforms have fallen on state workers, with new hires moved to hybrid cash balance pension plans since 2013.
“Our general thought in this time was while there is uncertainty, we all know that KTRS is well, well outside of the 20-year window to even look at being in a position like KERS whereas KERS could be in a 12- to 24-month window of us questioning whether or not people are going to start getting checks directly from the Treasury rather than from the retirement system,” said Sen. Chris McDaniel, a Republican from Taylor Mill, Kentucky, and chair of the Senate budget committee.
Teachers, who get traditional defined-benefit pensions, have resisted pushes toward defined-contribution plans and staged mass “sickouts” over retirement changes in 2018 that were later overturned by the Kentucky Supreme Court because lawmakers acted too quickly on the legislation.
Rudy agreed that the topic of reforms for future KTRS hires should be discussed during the legislative interim this year.
“We have to consider structural changes,” he said.
The coronavirus’ potential impact on the global economy has sent shock waves through the U.S. stock market, with successive slides that spell bad news for public pensions.
Over the last month, all the market gains made last year have been wiped away as stocks tumbled by more than 25%. That means pension funds, which rely heavily on public equities to boost investment returns, are likely to have their worst year since the 2008 financial crisis, barring a stunning turnaround in the next few months.
Pension funds won’t officially record their market values for financial reports until the fiscal year ends, which is on June 30 for most. But given the market’s reaction to the economic slowdown forced by the coronavirus, retired investment expert Girard Miller says he expects by this summer most fund assets will be where they were back in December of 2018.
“So it’s probably not going to be as dramatic as the loss we’ve seen over the last month,” he says. “If this continues for another 18 months, and stocks go down 40 to 50%, that’s a different story. But we’re not there yet.”
What would it mean to return to 2018? CalPERS, the largest plan in the country, reported a $337.2 billion market value in December 2018, according to plan financial documents. That’s 9.5% less than its reported value of $372.6 billion at the end of the last fiscal year in June 2019.
The worst-funded plan in the nation, the Kentucky Employees Retirement System, reported a $1.9 billion balance in December 2018. That’s 13% below the reported value of $2.2 billion at the end of the last fiscal year, according to plan financial reports.
How much plans stand to lose depends on how much of their assets are invested in stocks and other potentially volatile holdings. The average plan has about 40% of its portfolio invested in equities, according to the Boston College Center for Retirement Research (CRR). CalPERS follows closely to that. Kentucky’s plan is severely underfunded at 13%, so it has a smaller share in stocks and a higher-than-average share (about 30%) invested in bonds.
Ultimately, the market dynamics over the last 20 years and the low return from bonds has meant that pension funds can’t rely on the stock market to reach their target annual return of more than 7%. Jean-Pierre Aubry, the CRR’s associate director of state and local research, said pension investment returns have averaged well below that—just 5.6%—since 2001. The current downturn puts a fine point on that fact.
“Plans are facing a reckoning in terms of the cost in benefits,” says Aubry. “They have to put in more money to meet benefit goals if they’re going to get more returns like this going forward.”
While these are potentially daunting numbers for pension plans, they won’t directly translate to a budget strain for state and local governments just yet. First of all, the markets could stabilize and even start inching back upward before the fiscal year ends. That would help cut the current losses.
In addition, because of the way pension accounting works, any annual losses or gains are smoothed out over several years so that governments don’t get a huge jump in their annual pension bill. So, it likely won’t be until next year or even 2022 before the numbers begin to hit state and local government budgets.
Following the 2008 crash, for example, many plans lost about one-quarter of their actual value over the course of a year. But the annual funded level of plans as a whole stepped down from 86.5% funded to 78.4% in 2009, and continued down until stabilizing at 72.4% by 2012.
Plans, on average, haven’t gained any of that ground back. They have stayed at or near 72% funded, despite the record stock market run over the last decade and even as many governments have significantly increased their contributions. There are several reasons for this stagnation, but much of it has to do with the fact that the average plan has more retired members than active ones still contributing. That means more money out the door in retiree payments than is coming in from worker contributions. It also may mean that it will be once again difficult to regain any ground that’s currently being lost in the funded status.
According to a Moody’s analysis conducted before the current volatility, a loss of 6.2% in assets in a single year would require a 32% increase in contributions (likely smoothed over a few years) just to keep a plan’s funded status the same.
“The hit, if there is one, will not be felt all at once,” says senior analyst Tom Aaron, who authored the analysis. “Some of the strong returns from a couple years back are still being smoothed in so that’ll help offset it a bit.”
For plans like Kentucky’s that are already low on assets, however, Aaron says the picture isn’t as dire as it seems. The low funding has forced the state to ramp up its annual payments so much that it’s essentially become a pay-as-you go plan: contributions coming in slightly exceed the money going out in payments.
Most other plans are relying on investments to help cover payouts, meaning their decline in assets will factor more into determining the new upcoming payment for governments.
There is a silver lining, notes Miller. Stock prices are abnormally low and so are borrowing costs. Governments could issue pension obligation bonds and put the proceeds into their systems to take advantage of what will hopefully be a market rebound over the next year or so.
“If there was ever a time this made sense for an underfunded plan,” he says, “it would probably be now.”