Addressing underfunded pension and retiree health care plans is one of the greatest challenges facing governments today. Because of people living longer, stock market declines, benefit enhancements and underfunding, many funds simply do not have the money to fully pay for the retiree benefits that public employees and retirees expect. For defined benefit plans, this means that at some point governments and employees will need to contribute more to these plans, that benefits will need to be altered, or some combination of the two.
Our professionals have helped mediate nationally recognized comprehensive agreements among public safety employees and retirees and their governmental employers that preserved a very strong set of benefits and placed the respective benefit fund on much stronger financial footing. We understand how to explain these complicated issues in ways that employees, retirees, taxpayers and elected officials can understand. This is particularly important given the role actuarial assumptions play in reflecting fund health and determining funding levels.
We approach these difficult issues with the following philosophy:
- Nobody benefits from unfunded retiree benefit liabilities. Governments and their workforces need each other. Governments need their employees to provide the services that their citizens fund and expect. Public employees need their governmental employers to provide them a fair compensation package. Unfunded retiree benefit liabilities threaten the economic security of retirees, result in ever-increasing costs to governments, and push obligations onto future generations of employees and taxpayers.
- Retiree benefit funding issues are not simply math problems. Though addressing retiree benefit funding issues involves calculations, they are not simply math problems in search of a quantitative solution. Employees and retirees depend upon these benefits for their economic security. In some cases, retirees are not eligible for Social Security benefits and thus heavily depend upon their pensions for retirement income. We approach these issues cognizant and respectful of how they will impact employees, retirees and their families.
- Retiree benefit funding problems get worse with time if not addressed. We do not subscribe to the view that unfunded retiree benefit liabilities will take care of themselves if left alone for most municipal retiree benefit funds. Even with the stock market near its all-time high, many pension funds remain underfunded and most jurisdictions fund retiree health care on a pay-as-you-go basis. Unless these issues are addressed today, future generations of employees, retirees and taxpayers will be left having to deal with these problems.
- There is no “one size fits all” solution. In our work, we have found that every situation is unique and requires its own tailored approach. We do not have a bias for or against any plan type or benefit structure. Rather, we work with parties to try to identify a mutually agreed-upon outcome that addresses the concerns of all involved as best as possible. If that is not possible, we will make our own recommendations.
We have found that successfully addressing unfunded retiree benefit liabilities depends greatly on the process used. In some cases, there is a history of mistrust among the parties. In almost all cases, even discussing these issues understandably raises employee and retiree concerns. As a result, few elected officials see much political upside in taking on these issues. Furthermore, simply writing a report that describes the problem with options or recommendations has very little chance of actually being implemented.
Though it will not be easy, we recommend that governments strive to reach a consensus agreement among the parties on a way forward. We have seen this work best where a public task force analyzed the issues with technical assistance from independent experts who help the group’s members understand the issues and develop options. In addition to educating the public and other stakeholders (most notably current and future retirees), a public process will also encourage these individuals – either by themselves or through their representative organizations – to participate in coming up with solutions so that at the end of the day, it is their solution – not some outside consultant’s. Our professionals have provided task forces with technical assistance and have mediated consensus agreements with cities, employees and retirees.
For a PDF overview of The Kapoor Company and our relevant Pension/Retiree Health Care Mediation and Funding experience, please click here.