Public pension funds: a balancing act.

• Author: Eitelberg, Cathie

After a decade of double-digit investment returns, the state and local government retirement nest egg has grown to $800 billion in assets. This happy result has drawn attention to public plans and sparked a renewed interest in funding policy among government officials. Many elected officials, who must balance the needs of all taxpayers, are questioning the fiscal wisdom of current retirement system funding practices, among across the country hard choices must be made to compensate for falling revenues, increased pressure for services and a sluggish economy. Taxes have been raised, work forces reduced and programs slimmed down or eliminated. Public officials performing with the agility of high-wire performers and the tenacity of lion tamers have had to orchestrate budget decisions much like a ring master at a circus. And often in a similar atmosphere.

This "step-right-up" attitude, however, has government workers and retirees concerned over the safety of their retirement savings. Given the fact that public employees contribute between 3 and 10 percent of their salaries toward retirement, their concern is justified. Great strides have been made in improving public employee retirement systems' (PERS) funding levels since the 1970s. Indeed, "underfunding" was the most cited complaint about PERS until the 1980s, when a bull market and a serious commitment on the part of public employers to fund retirement benefits combined to substantially improve the funding of these plans. By 1988, as seen in Exhibit 1, PERS with more than $1 billion in assets could meet 83 percent of their future liabilities. Smaller plans, those with assets under $50 million, covered approximately 69 percent of their long-term obligations.

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The concern is that PERS may fall victim to their economic success in an era when some public officials ask, "Why should our government continue to fund a retirement system when it has enough assets to meet its benefit obligation to current retirees and when there are so many competing needs?" In the view of public employees, there are four important reasons why: * continued funding of retirement systems

assures that resources will be available,

independent of revenue trends, to pay

future retirees' benefits; * it permits the fund to act as a buffer

against fluctuating political support; * it serves as a public acknowledgment to

both participants and taxpayers of the

financial obligations accruing that must

be paid...