Methods to Address Pension Underfunding

 

There is no single solulion or approach that has been applied to arzd'essmg pension lZ' Patter  variety of rucis
have bee and she ild continue to be employed.

 

Increase Funding

 

Reduce or Control Benefits

Defer Liabilities Using Actuarial

Issue Pension Obligation Bonds

Pros Pros Assumptions (POBs)
Least complicated A Reducing or limiting benefits can 
reduce costs, resulting in A Lowers the liability calculation A Immediate budget relief possible

Cons

 

Annual payments could be
substantially higher than current
budget

Increased employee payments
may be limited by contract

decreased contribution costs

A Change to De?ned Contribution
or Hybrid program

A Private sector precedents

and allows for longer
amortization schedule

A Extended smoothing of gains
andlosses

Extend or expand collar
implementation

A

.4:



Market gains realized on
additional assets

Cons

Confers additional permanence

issues to liability
Cons Cons
Contributes to budget stress I . . Financial benefits subject to risk
Polarization of employer! retiree Limit to how much actuaries of investment performance
Considerations interests allow
I Considerations
Tax increases may be only Vi?ll need to be used in Future budget implications; 
funding source conjunction with other options magnifies UAAL in later years A Imposes bUdQet
certain
. - . . GASB/rating agencies will 
0f Increases put discount approach A  
Pressure 0? bUdgetS with taxable rates at current
Short time frame and market ConSIderations Consrderations levels
conditions make increased Prospective employees result in Defers issLJes A Immediate funding ratio impact
returns unlikely solution muted effect Leverages pension funds
Ampli?es investment
performance risk
Timing of investment of

proceeds

 

Overview of Unfunded Pension Liabilities