Illinois’ (Baa3 stable) pension funding slightly improved under our adjustments in the year ended June 30, 2018, despite higher unfunded liability figures that the state reported December 7 (see Exhibit 1). Rising interest rates that lowered liabilities, combined with favorable investment returns, drove down the state’s adjusted net pension liability (ANPL) by an estimated 2%-5% in the year. Nonetheless, Illinois’ recent pension funding gains lag those of other states, largely because of its weak contributions and rising payouts.
Heavy pension burdens have weakened credit quality for many Illinois cities in recent years, but some Illinois municipalities have maintained exceptional credit profiles.
Without changes to New Mexico’s two statewide cost-sharing pension plans, municipalities’ elevated pension burdens will intensify. Although pension contribution rates are set by state statute, if rates increase through legislative reform, local governments will likely be responsible for these cost hikes.
Source: Thomas Aaron, Timothy Blake, Moody’s Investors Service, Sector In-Depth, Local government – US, December 18, 2018
Adjusted net pension liabilities (ANPLs) reached new peaks for most of the 50 largest local governments (by debt outstanding) in fiscal year 2017 reporting, due to poor investment returns and low market interest rates. Most governments report pension funding with up to a one-year lag, so favorable investment returns in fiscal 2017 and 2018 will lead to a decline in ANPLs through many of those governments’ 2019 reporting. Nonetheless, pensions continue to drive historically high leverage and elevated annual costs for some governments, and risks from potential pension investment losses are significant…..
Source: S&P Global Ratings, January 16, 2019
• Volatile markets could affect future pension costs and funding status.
• States might need to offload pension costs to local governments.
• Updated disclosure on reported retiree health care obligations could heighten awareness and spur reform.
• States continue to pass pension reform and sustainability measures in an effort to manage costs and improve system health.
• The combination of environmental, social, and governance obligations and retirement obligations could also stress long-term government costs.
In this economic recovery period since the Great Recession a decade ago, many state and local governments faced rising costs and risk further increases related to funding long-term pension and other postemployment benefit (OPEB) obligations. S&P Global Ratings incorporates a forward-looking view of pension risks to costs in its credit opinion and ratings approach. As we look forward to fiscal 2019, we believe there are five key trends related to pension and OPEB liabilities that could have implications for future government costs: market volatility; states’ offloading of costs to local governments; retiree health care liabilities; pension reform; and the management of environmental, social, and governance (ESG) obligations and retirement obligations.
Two primary drivers critically impacting both budgetary considerations and public policy processes for the foreseeable future regardless of revenue and service selection are pension liabilities and infrastructure. One tends to be historical in context while the other is futuristic in its scope. Both pension liabilities and infrastructure face headwinds. Both issues transcend interest groups. Both issues potentially advocate fairness and social equity across a broader spectrum of citizens arguably more so than others.
In this continuing series of articles exploring public infrastructure, the combination of unfunded liabilities for both public pension funds (estimates range from US$1-$3 trillion) and infrastructure (estimates ranging from US$1-$5 trillion) conjure up public policy and financial dilemmas constraining even effective discourse. Over the long-term, as difficult as it is to imagine, maybe one unfunded liability poses an opportunity to resolve the other unfunded liability. Can infrastructure be an elixir for long-term pension liabilities? ….
Retiree health care is one of the fastest-growing line items in government budgets and, in response, some governments are scrapping their traditional health plans.
From the abstract:
A new report finds that teacher pension plans play a critical role in retaining educators while also providing greater retirement security than 401(k)-style retirement accounts. Eight out of ten educators serving in the six states studied can expect to collect pension benefits that are greater in value than what they could receive under an idealized 401(k)-type plan. The study also finds that the typical teacher in these states that offer pensions will serve 25 years in the same state, while two out of three educators will teach for at least 20 years.
These findings are featured in new research, Teacher Pensions vs. 401(k)s in Six States: Colorado, Connecticut, Georgia, Kentucky, Missouri and Texas, from the UC Berkeley Center for Labor Research and Education (Labor Center) and the National Institute on Retirement Security. The report is author by Dr. Nari Rhee, director of the Retirement Security Program at the UC Berkeley Labor Center, and Leon (Rocky) Joyner, vice president and actuary with Segal Consulting.
Source: S&P Global Ratings, December 13, 2018
S&P Global Ratings’ U.S. public finance team continues to highlight key pension and other postemployment benefit (OPEB) trends. In 2018, our research has provided comprehensive national and regional insight on these obligations and rising governmental costs to inform a forward-looking view on credit risk. In case you missed them, we have compiled a list of research reports published in 2018 on these topics.
From the abstract:
The federal government lags behind in progressive civil rights policies in regard to universal workplace antidiscrimination laws for lesbian, gay, bisexual, and transgender (LGBT) Americans. The slow progress matters to inclusionary workplace practices and the theory and practice of public administration generally, as recognition of LGBT rights and protection are constitutive of representative bureaucracy and promoting social equity. This study examines the turnover intention rates of self-identified LGBT employees in the U.S. federal government. Using the Office of Personnel Management’s inclusion quotient (IQ), and 2015 Federal Employee Viewpoint Survey (FEVS), we identify links in the relationships between workplace inclusion and turnover outcomes among LGBT individuals. We also examine the impact of agency type on LGBT turnover rates based on Lowi’s agency classification type. Key findings suggest that LGBT employees express higher turnover intentions than those that identify as heterosexuals/straight, and LGBT employees who perceive their agencies as redistributive or communal are less likely to experience turnover intentions. However, an open and supportive workplace environment had a positive impact on turnover, suggesting that to implement effective structural change in an organization’s culture of inclusion, public sector managers must do more than merely “talk the talk.” This finding is also suggestive of LGBT employees’ desire to avoid the stigma of being LGBT and hide their identities. Institutions must heed the invisible and visible identities of their employees to be truly inclusive. Workplace practices that acknowledge the invisible and visible identities of their employees are a positive step toward real workplace inclusion.