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Unfunded pension liabilities It is interesting to note the discussion by our city council majority that the city’s pension liabilities may be addressed this spring. In an impromptu speech at Casta Del Sol, the mayor said the city’s pension obligations would possibly be paid off over the course of three years. Could you tell your bank that your mortgage which is due will be paid in three years? The city has two unfunded liabilities, and both relate to defined benefit plans. The first is the pension plan payment, which is for the retirement benefit of employees and usually paid monthly after retirement. The second unfunded liability is for the health-plan benefits of employees past retirement. Pension obligations and retirement health-benefit payments compound annually. When one year is paid, another year’s obligation is created unless the investment assets outperform expectations. The city plays the perpetual payment game with taxpayer funds. The health retirement plan compounds actuarially at an even higher rate since medical costs are recently compounding annually by double digits, and life expectancy for all people is longer. The city needs to pay up all current pension plan obligations (monthly retirement benefits) and take a serious look at retirement health-benefit plan costs in the future. When such an unfunded obligation is funded, the city’s balance sheet takes a major reduction due to the heavy payments. This is one of the dilemmas of procrastinating for so long. This is the crux issue when council members say there is money to pay for pet projects. There are many cities that fund retirement health care for retired employees with defined contribution plans until Medicare becomes available. Let’s hope our city not only takes care of its unfunded liabilities but addresses the cause of those liabilities. James Edward Woodin |
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