Public pensions in Utah

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Utah public pensions
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Pension System
Number of pension systems 1
State pension systems: Utah Retirement System
System type: Defined benefit plan; defined contribution plan; hybrid plan
Pension Health (2012)[1]
Fund Value: $21,369,935,000
Estimated liabilities: $27,939,108,000
Unfunded liabilities : $6,569,173,000
Percent funded: 76.49%
Percent funded change: Decrease.svg6.26%[2]
Percent funded rank: 19[3]
Pension Fund Members (2012)
Total Members: 194,529
Active Members: 104,450
Other Members: 90,079
Other State Pension Information
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Policypedia
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Pension Policy
Public pensions
State public pension plans
Public pension health by state
Utah public pensions are the state mechanism by which state and many local government employees in Utah receive retirement benefits. The Utah Retirement Systems administer benefits to the state's eligible retirees through eight separate sub-systems and plans:[4]
  • Noncontributory Retirement System (NRS)
  • Contributory Retirement System (CRS)
  • Public Safety Retirement System (PSRS)
  • Firefighters Retirement System (FRS)
  • Judges Retirement System (JRS)
  • Utah Governors and Legislators Retirement Plan (UGLRS)
  • Tier 2 Public Employees Retirement System (Tier 2 PERS)
  • Tier 2 Public Safety and Firefighters Retirement System (Tier 2 PSFRS)

According to the United States Census Bureau, the state has one locally-administered pension system.[5]

A 2012 report from the Pew Center on the States noted that Utah's pension system was funded at 82 percent at the close of fiscal year 2010, just above the 80 precent funding level experts recommend. Pew designated the state's pension system as needing "improvement."[6]

The funding ratio for the state's pension system decreased from 95.80 percent in fiscal year 2007 to 76.49 percent in fiscal year 2012, a decrease of 19.31 percentage points, or 20.2 percent. Likewise, unfunded liabilities increased from under $1 billion in fiscal year 2007 to more than $6,5 billion in fiscal year 2012.[4]

Features

Pension plans

In fiscal year 2012, according to the system's Comprehensive Annual Financial Report, Utah had a total of 104,450 active members in its retirement plans.[4] Our membership figures divide plan participants into two broad categories: active and other. Active members are current employees contributing to the pension system. Other members include retirees, beneficiaries and other inactive plan participants (usually terminated employees entitled to benefits but not yet receiving them).[7]

The following data was collected from the system's Comprehensive Annual Financial Report. The "percentage funded" is calculated by taking the current value of the fund and dividing by the estimated amount of total liabilities. The assumed rate of return used to calculate fund value was 7.50 percent in fiscal year 2012.[4] The Government Accountability Office (GAO) and Pew Research Centers cite a percent funded ratio of 80 percent as the minimum threshold for a healthy fund, though the American Academy of Actuaries suggests that all pension systems "have a strategy in place to attain or maintain a funded status of 100 percent or greater."[8][9] The column labeled "SBS figure" refers to a market liability calculation of the fund by the nonprofit organization State Budget Solutions. This analysis uses a rate of return of 3.225 percent, which is based upon the 15-year Treasury bond yield. The organization calls this a "risk-free" rate of return that would make it easier for states to achieve their pension funding requirements in the future. Since 2006, all private sector corporate pension plans have incorporated market costs into their funding schemes.[10]

Basic Pension Plan Information -- Utah*[4]
Plans Current value Percentage funded Unfunded liabilities Membership
State figure SBS figure[11] State figure SBS figure[11]
Noncontributory Retirement System $17,007,940,000 76.1% N/A[12] $5,353,257,000 N/A[12] 82,259 active members
Contributory Retirement System $1,094,885,000 85.1% $191,087,000 1,937 active members
Public Safety Retirement System $2,283,777,000 73.0% $845,307,000 7,313 active members
Firefighters Retirement System $824,060,000 86.2% $131,608,000 1,884 active members
Judges Retirement System $131,217,000 74.6% $44,600,000 111 active members
Utah Governors and Legislators Retirement Plan $9,077,000 73.7% $3,246,000 113 active members
Tier 2 Public Employees Retirement System** $17,818,000 99.6% $72,000 10,356 active members
Tier 2 Public Safety and Firefighters Retirement System** $1,161,000 100.3% $(4,000) 477 active members
TOTALS $21,369,935,000 76.49% 42% $6,569,173,000 $29,759,752,000 104,450 active members
*Two valuations were conducted in 2012, one in January and one in December. Because they are the most recent, December 2012 figures are included here.
**Because the Tier 2 systems are relatively new, valuation data is only available for 2012.

Annual Required Contribution

Annual Required Contributions (ARC) are calculated annually and are a sum of two different costs. The first component is the "normal cost," or what the employer owes to the system in order to support the liabilities gained in the previous year of service. The second component is an additional payment in order to make up for previous liabilities that have not yet been paid for. According to a report by the Pew Center on the States, in 2010 Utah paid 100 percent of its annual required contribution.[6][13]

On June 25, 2012, the Government Accounting Standards Board (GASB) approved a plan to reform the accounting rules for state and local pension funds. These revised standards were set to take effect in fiscal years 2013 and 2014.[14] As a result, ARCs were removed as a reporting requirement. Instead, plan administrators and accountants will use an actuarially determined contribution or a statutory contribution for reporting purposes.[15]

ARC historical data[4]
Fiscal year NRS CRS PSRS FRS
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $644,907,000 100% $11,705,000 100% $117,975,000 100% $17,321,000 100%
2011 $610,270,000 100% $11,125,000 100% $110,829,000 100% $13,005,000 100%
2010 $564,154,000 100% $11,851,000 100% $103,586,000 100% $10,915,000 100%
2009 $535,298,000 100% $10,865,000 100% $98,729,000 100% $16,159,000 100%
2008 $522,733,000 100% $11,037,000 100% $93,899,000 100% $10,219,000 100%
ARC historical data[4]
Fiscal year JRS UGLRS Tier 2 PERS Tier 2 PSFRS
Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed Annual Required Contribution (ARC) Percentage contributed
2012 $5,898,000 100% $214,000 100% $14,208,000 100% $1,031,000 100%
2011 $5,403,000 100% $153,000 100% $2,790,000 100% $89,000 100%
2010 $4,715,000 100% $0 100% N/A N/A N/A N/A
2009 $4,184,000 100% $0 100% N/A N/A N/A N/A
2008 $3,802,000 100% $0 100% N/A N/A N/A N/A

Historical funding levels

Historical pension plan data - all systems**[4]
Year Value of assets Accrued liability Unfunded liability Funded ratio
2007 $18,093,491,000 $18,886,114,000 $792,623,000 95.80%
2008 $20,269,043,000 $21,321,332,000 $1,052,289,000 95.06%
2009 $19,857,580,000 $22,932,398,000 $3,074,818,000 86.59%
2010 $20,818,430,000 $24,274,639,000 $3,456,209,000 85.76%
2011 $21,131,650,000 $25,535,499,000 $4,403,849,000 82.75%
Change from 2007-2011 $3,038,159,000 $6,649,385,000 $3,611,226,000 -13.05%
**Because the Tier 2 systems are relatively new, valuation data is only available for 2012.

Rate of return

The Utah Retirement Systems presume a 7.50 percent return rate on their pension investments.[4]

Analysis

Percent Funded Status of Pension Plans
in the 50 States as of November 2013
Public pensions in NevadaPublic pensions in MassachusettsPublic pensions in ColoradoPublic pensions in New MexicoPublic pensions in WyomingPublic pensions in ArizonaPublic pensions in MontanaPublic pensions in CaliforniaPublic pensions in OregonPublic pensions in WashingtonPublic pensions in IdahoPublic pensions in TexasPublic pensions in OklahomaPublic pensions in KansasPublic pensions in NebraskaPublic pensions in South DakotaPublic pensions in North DakotaPublic pensions in MinnesotaPublic pensions in IowaPublic pensions in MissouriPublic pensions in ArkansasPublic pensions in LouisianaPublic pensions in MississippiPublic pensions in AlabamaPublic pensions in GeorgiaPublic pensions in FloridaPublic pensions in South CarolinaPublic pensions in IllinoisPublic pensions in WisconsinPublic pensions in TennesseePublic pensions in North CarolinaPublic pensions in IndianaPublic pensions in OhioPublic pensions in KentuckyPublic pensions in PennsylvaniaPublic pensions in New JerseyPublic pensions in New YorkPublic pensions in VermontPublic pensions in VermontPublic pensions in New HampshirePublic pensions in MainePublic pensions in West VirginiaPublic pensions in VirginiaPublic pensions in MarylandPublic pensions in MarylandPublic pensions in ConnecticutPublic pensions in ConnecticutPublic pensions in DelawarePublic pensions in DelawarePublic pensions in Rhode IslandPublic pensions in Rhode IslandPublic pensions in MassachusettsPublic pensions in New HampshirePublic pensions in MichiganPublic pensions in MichiganPublic pensions in AlaskaPension Health 2013.png
Note: The data in this map was compiled from state CAFR reports and Actuarial Valuation documents. Figures reflect a combination of all of the state pension plans.
Funded Ratio of State Public Pension Plans as compiled by State Budget Solutions

According to a 2012 analysis by the Pew Center for the States, most state pension plans assume an 8 percent rate of return on investments.[16] Critics assert that this assumption is unrealistic, citing changing market conditions and significantly lower investment returns across the board over the past several years.[17] When states lower the rate of return in an effort to accurately predict investment earnings, it increases the current plan liabilities, thereby lowering the percent funded ratio and causing the ARC to increase. This is because future plan liabilities are discounted based on the rate of return, so smaller expected investment returns result in larger actuarially accrued liabilities.[18] For example, on September 21, 2012, the Illinois Teachers Retirement System voted to lower its rate of return from 8.5 percent to 8.0 percent. This change increased the state's fiscal year 2014 ARC from $3.07 billion to $3.36 billion.[19] Similarly, when California's CalPERS reduced its projected annual rate of return from 7.75 percent to 7.5 percent in March 2012, it cost the state an additional $303 million for fiscal year 2013.[20]

The 2008 financial crisis had a devastating effect on pension plans nationwide and has resulted in slower economic growth and increased market volatility. In light of this, some market strategists find the 8 percent assumption to be overly ambitious. Stanford University Finance Professor Joshua Rauh stated that using past investment performance in this economic climate was "dangerously optimistic."[21] Advocates for a lower assumed rate of return argue that the standard assumptions could cause pension fund managers to engage in more risky investments and imprudent stewardship of public funds. Further, if pension plans were using more conservative assumptions, such as the 3 or 4 percent assumed rate of return used in the private sector, and the plans grew more quickly than expected, the fund would have a surplus and smaller future ARCs, which would be preferable to using optimistic assumptions and potentially being caught with larger-than-expected deficits.[22][23][24][25][26]

On the other hand, traditional public pension plan advocates argue that the dip observed in recent years is not sufficient proof of a long-term, downward trend in investment returns. According to Chris Hoene, executive director at the California Budget Project, "The problem with [the market rate] argument is there isn’t significant evidence other than the short term blip during the economic crisis that there’s been that shift. It’s a speculative argument coming out of a very deep recession."[21]

The National Association of State Retirement Administrators compiled data on the median annualized rate of return for public pensions for the 1-, 3-, 5-, 10-, 20-, and 25-year periods ending in 2013. While the median annualized rate of return failed to meet the 8 percent assumption that most public pensions assume over the 5- and 10-year periods, it was just shy (7.9 percent) over the 20-year period, and it exceeded 8 percent for the 1-, 3-, and 25-year periods. It is important to note that the NASRA data is reporting the median returns, indicating that even though median annualized returns exceeded 8 percent in the 25-year period, the investment portfolios for half of the examined public pension funds failed to meet an 8 percent assumed rate of return.[27]

In September 2013, the nonprofit organization State Budget Solutions published an analysis of state pension funding levels. In its calculations, State Budget Solutions used a 3.2 percent rate of return, the 15-year Treasury bond yield as of August 21, 2013, to discount plan liabilities.

The research found that, all states combined, state public employee pension plans have only 39 percent of the assets they need to cover their promised payments—a $4.1 trillion gap. According to the report, Utah's public pension plans were 42% funded, making it the 14th most funded state.[28]

Moody's report on adjusted pension liabilities

On June 27, 2013, Moody's Investor Service released its report on adjusted pension liabilities in the states. The Moody's report ranked states "based on ratios measuring the size of their adjusted net pension liabilities (ANPL) relative to several measures of economic capacity." In its calculations of net pension liabilities, Moody's employed market-determined discount rates (5.54 percent for Utah) instead of the state-reported assumed rates of return (7.50 percent for Utah as of January 1, 2011).[29]

The report's authors found that adjusted net pension liabilities varied dramatically from state to state, from 6.8 percent (Nebraska) to 241 percent (Illinois) of governmental revenues in fiscal year 2011.[29]

The adjusted net pension liability for Utah in fiscal year 2011 was ranked the 40th highest in the nation.[29] The following table presents key state-specific findings from the Moody's report, as well as the state's national rank with respect to each indicator.

Adjusted net pension liabilities (ANPL) relative to key economic indicators - Utah
Governmental revenue* Personal income State GDP Per capita
State findings 30.8% 3.4% 2.5% $1,124
National ranking 35th 35th 38th 37th
*Moody's uses governmental revenues as reported in each state's consolidated annual financial reports; this includes not only state-generated revenue, but federal funds, as well.[29]

Reforms

Enacted reforms

2010

Senate Bill 63

Sponsored by Senator Dan Liljenquist, S.B. 63 sought to close the state's defined benefit pension plan to employees hired after July 1, 2011. In its stead, employees would choose between a defined contribution plan or a hybrid plan combining elements of a defined benefit plan and a defined contribution plan. The governor signed the bill into law on March 29, 2010.[30][31]

Local public pensions

See also: Local government public pensions

According to the United States Census Bureau, the state has one locally-administered pension system.[5]

Transparency

See also: Public pension disclosure and Governmental Accounting Standards Board
  • The Utah Retirement Systems publish annual financial reports online.[4]
  • Names of recipients and amounts disbursed are not posted.
  • Pension investment information is not posted on the URS website, but it is posted in the annual financial reports.[4]

Recent news

This section displays the most recent stories in a Google news search for the term "Utah + public + pensions"

All stories may not be relevant to this page due to the nature of the search engine.

Utah Public Pensions News Feed

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See also

External links

References

  1. Figures below are compiled by adding up all state pension plans
  2. This figure is derived by calculating the percent difference between the current year's funding level and the system's percent funded from the prior year.
  3. Rank is relative to the 50 state pension programs. "1" refers to the healthiest pension plan while "50" would be the least well-funded plan.
  4. 4.00 4.01 4.02 4.03 4.04 4.05 4.06 4.07 4.08 4.09 4.10 4.11 4.12 4.13 4.14 4.15 4.16 Utah Retirement Systems, "2012 Comprehensive Annual Financial Report," accessed November 26, 2013
  5. 5.0 5.1 "Public Employee Retirement Systems State- and Locally-Administered Pensions Summary Report: 2010," United States Census Bureau, April 30, 2012
  6. 6.0 6.1 Pew Center on the States, "Widening Gap Update: Utah," June 18, 2012
  7. Organisation for Economic Co-operation and Development, "Pensions Glossary," accessed November 27, 2013
  8. United States Government Accountability Office Report to the Committee on Finance, U.S. Senate, "State and Local Government Retiree Benefits: Current Status of Benefit Structures, Protections, and Fiscal Outlook for Funding Future Costs," September 2007. Accessed October 23, 2013
  9. American Academy of Actuaries, "Issue Brief: The 80% Pension Funding Standard Myth," July 2012. Accessed October 23, 2013
  10. Governing Magazine, " Is There a Plot Against Pensions?" October 14, 2013
  11. 11.0 11.1 State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  12. 12.0 12.1 Analysis only available for system totals and not individual funds.
  13. Government Accounting Standards Board, "Annual Required Contribution (ARC)," accessed October 17, 2013
  14. Reuters, "Little-known U.S. board stokes hot pension debate," July 10, 2012
  15. State Budget Solutions, "GASB's ineffective public pension reporting standards set to take effect," June 5, 2013
  16. "The Widening Gap Update,” Pew Center on the States, accessed October 17, 2013
  17. The New York Times "Public Pensions Faulted for Bets on Rosy Returns," May 27, 2012
  18. Benefits Magazine "Public Pension Funding 101: Key Terms and Concepts," April 2013. accessed October 23, 2013
  19. Crain's Chicago Business "State teachers pension board lowers expected rate of return," September 21, 2013. accessed October 23, 2013
  20. Huffington Post "California Pension Funds Expect Lower Investment Return," March 14, 2012. accessed October 23, 2013
  21. 21.0 21.1 Governing "Expert: Governments Are Masking Their Pension Liabilities ," October 25, 2013. accessed October 25, 2013
  22. The Washington Post "Kansas’s pension funding gap just grew by $1 billion," September 6, 2013. accessed October 25, 2013
  23. Topeka Capital-Journal "KPERS' unfunded liability rises to $10.2B," September 4, 2013. accessed October 25, 2013
  24. Wall Street Journal "Pensions Wrestle With Return Rates," October 10, 2011. accessed October 23, 2013
  25. The Courant "Promising Too Much On Public Pensions," August 10, 2012. accessed October 23, 2013
  26. Business Wire "NCPERS 2013 Survey: Public Pension Plans Report Increasing Confidence, Lower Costs, Growing Returns," October 22, 2013. accessed October 25, 2013
  27. National Association of State Retirement Administrators "Issue Brief: Public Pension Plan Investment Return Assumptions," October 2013. accessed October 23, 2013
  28. State Budget Solutions, "Promises Made, Promises Broken - The Betrayal of Pensioners and Taxpayers," accessed September 20, 2013
  29. 29.0 29.1 29.2 29.3 Moody's Investor Service, "Adjusted Pension Liability Medians for US States," June 27, 2013
  30. Utah State Legislature, "SB 63," accessed November 26, 2013
  31. The Salt Lake Tribune, "State pension plan gets overhaul," accessed March 11, 2013