Education officials predict little impact from proposed public pension changes

No hike in contribution rates expected for PSRS/PEERS

By Kari Williams

Proposed changes in calculating unfunded liability are not expected to have much of an effect on the state’s teacher retirement system or local schools, according to some education officials.

Moody’s Investors Service Inc. recently announced it is seeking comments on a proposal to change the way it calculates unfunded liability for public pension programs.

Moody’s proposal, “Adjustments to U.S. State and Local Government Reported Pension Data,” is part of the firm’s “ongoing efforts to bring greater transparency and consistency to the analysis of pension liabilities, which have driven a number of downgrades and outlook changes for states and cities.”

Moody’s proposed adjustments include:

• “Multiple-employer cost-sharing plan liabilities will be allocated to specific government employers based on proportionate shares of total plan contributions.

• “Accrued actuarial liabilities will be adjusted based on a high-grade long-term corporate bond index discount rate — 5.5 percent for 2010 and 2011.

• “Asset smoothing will be replaced with reported market or fair value as of the actuarial reporting date.

• “Annual pension contributions will be adjusted to reflect the foregoing changes as well as a common amortization period.”

Steve Yoakum, executive director of the Public School and Education Employee Retirement Systems, or PSRS/PEERS, said Moody’s intends to calculate what it believes to be liabilities using public financial data to come to those conclusions.

“I have concerns about them doing that,” he said.

The current anticipated return on investment for PSRS/PEERS is 8 percent.

However, Yoakum said he does not anticipate the calculation will effect how much teachers contribute to their retirement funds.

“I think the fund is in good condition. I don’t anticipate raising contribution rates into the future,” Yoakum said.

Lindbergh Schools Chief Financial Officer Pat Lanane told the Call Moody’s proposed adjustments will not have much of an impact on Missouri schools because pension liability is “turned over to a completely separate entity” — PSRS/PEERS.

“If you go to the state budget, you will not see one single dollar going directly from the state budget to the retirement system,” Lanane said. “There is no connection.”

PSRS currently sits at 85.5 percent funding on an actuarial basis looking “at pensions across the board,” Lanane said.

“I don’t really see that as a real argument that, ‘Oh my gosh, the taxpayers are going to be on the hook for some unfunded liability,'” he said.

PSRS has roughly $29.4 billion in actuarial value of assets and about $34.4 billion in actuarial accrued liability. PSRS’s unfunded actuarial accrued liability currently totals nearly $5 billion, a decrease from the roughly $8 billion the previous year.

PEERS is funded at 85.3 percent, with roughly $3 billion in actuarial value of assets and about $3.5 billion in actuarial accrued liability. PEERS’ unfunded actuarial accrued liability currently totals roughly $520 million.

Mehlville School District Chief Financial Officer Noel Knobloch told the Call the only way Moody’s proposed adjustments would impact Mehlville is if the contribution levels increase. By law, the maximum the contribution level can increase is to 15 percent, Knobloch said.

Contribution rates for fiscal 2013 did not increase from fiscal 2012. PSRS rates remained at 14.5 percent for school districts and employees. PEERS rates remained at 6.86 percent for school districts and employees.

Lanane said the teacher retirement fund in Missouri is on a “fund-it-as-we-go” type of system.

“When a teacher retires, our liability is also retired,” he said. “So when they leave, the district has no more payments … So from that standpoint, I have no worry about that. I’ve never had an auditor talk to me about the pension piece because it really doesn’t apply … because we pay as we go.”

The Governmental Accounting Standards Board, or GASB, in June approved new standards for calculating unfunded balances for public pensions that are expected to go into effect in 2014. Yoakum said the GASB changes will not so much alter the amount, but push liability out to individual school districts.

“It’s like taking about $8 billion in unfunded liability, taking that and pushing it out to the individual school districts,” he said. “We’re not really sure how that’s going to happen yet … It’s the biggest accounting change on the horizon.”

Lanane said he does not believe the new GASB standards for pension liabilities will have much of an effect on school districts.

“We do have a GASB calculation where (they) calculate the cost of having older retirees on the insurance plan, knowing that their portion of that cost per person is higher than the 25-year-old person,” Lanane said, “and so, we do have to do a calculation on that, but it’s really not much consequence in the total picture. I don’t think it constitutes much of a factor when they look at our overall rating.”

For Missouri as a whole, Lanane said he does not see new calculations being “much of a factor,” but there is cause for concern in states with a continuing obligation.

“I think it’ll be huge in states where districts have a continuing obligation on a pension so that really when a person retires that begins …,” Lanane said. “In some states, when a teacher retires, the pension liability just begins for the district. Here (in Missouri) when they retire, it ends.”

Comments can be submitted through Aug. 31 to Moody’s at cpc@moodys.com.