NASRA Provides Guidance to Follow Public Pension Funding Policies’ Best Practices, Looks at Dedicated Funding Sources

MuniNet Guide dedicates a lot of effort to discussing and solving the public pension and OPEB (other post-employment benefits) crisis, and will continue, as the crisis is ongoing. We also believe it is important to highlight the good work of allies in this struggle. The National Association of State Retirement Administrators (NASRA) provides many best practices and educational reports on a variety of public pension issues, from an elected officials perspective, and investment manager perspective, and more. One of their helpful resources looks at pension plan funding policies

Funding policies are planned policies, determined ahead of time, on how decisions are made about how much to invest in retirement funds in a given year. Their report, “Pension Funding: A Guide for Elected Officials“, was created by a team from organizations representing national governors, legislatures, local officials, and public finance professionals. It was constructed based on the following five principles:

  • Have a pension funding policy that is based on an actuarially determined contribution.
  • Build funding discipline into the policy to ensure that promised benefits can be paid.
  • Maintain intergenerational equity so that the cost of employee benefits is paid by the generation of taxpayers who receives services.
  • Make employer costs a consistent percentage of payroll.
  • Require clear reporting to show how and when pension plans will be fully funded.

MuniNet has discussed the disputed efficacy of current discount rates and how investment decisions are being made today. NASRA’s report is another contribution to the discussion. They also look at case studies of eight states that have dedicated funding sources for their retirement systems. These are either ongoing or one-time funding sources that are required by law to be contributed to funding the pension system, and are therefore protected from being used by elected officials from using the money elsewhere. The eight states NASRA looks at are Arizona, Hawaii, Kansas, Louisiana, Montana, Oklahoma, Pennsylvania, and Rhode Island. For example, a portion of taxes paid on fire insurance policies in Arizona are used to fund firefighting services and the firefighters relief and pension fund.

NASRA has earned status as one of MuniNet Guide’s ‘Top Picks’ for online resources on public pensions. Other Top Picks and more public pension information can be found on our Public Pension page.

by Jeffrey L Garceau