Accounting Change Means Georgia Holding Much More Pension Debt

Nothing screams “sexy political story!” than a change by the Governmental Accounting Standards Board. So try to hang with us here, as this one does impact the state’s ongoing budget issues as well as how it accounts for the amount  of investments on hand to fund Georgia’s future pension obligations.

Walter Jones has all the details, and we’ll summarize a few here.

First, the shocker: Georgia may have to recognize that pension debts are seven times larger than current estimates show.

No estimates are available from the Employees’ Retirement System of Georgia as of Friday. But Joshua Rauh of Northwestern University estimated that nationally it could boost the figure for outstanding liabilities more than seven times.

“While this information will, in some cases, give the appearance that a government is financially weaker than it was previously, the financial reality of the government’s situation will not have changed,” the GASB observed in its explanation.

But the caveat is, Georgia is still ranked as one of the healthiest states with respect to current coverage of future pension liabilities.

A comparison of all 50 states’ pensions released June 18 by the Pew Center on the States noted that Georgia is ahead of the 80 percent most financial experts describe as the minimum, prudent funding level that 34 states fall below.

Incidentally, the pension fund for legislators had 128 percent of its needed investment.

The Pew Center classified Georgia as “a solid performer at how it managed its long-term liabilities for pensions.”

Changes will require Georgia to move to a “mark to market” method of valuing assets in the pension fund, as opposed to a current seven year average.  This will likely mean more volitility of the measure, and could mean bigger budget problems during downturns as more contributions would be needed as asset values fall.  Read Jones’ full article to get the nuances of that.  The big picture point is, the accounting changes will have direct and sudden impacts on the state’s budget going forward as reserves are increased.

4 comments

  1. John Konop says:

    Charlie,

    Even if anyone buys the creative math on pensions, healthcare liability is way underfunded. And as the population ages this problem only grows.

    ….As of 2010, Georgia’s pensions are 85 percent funded and have a total liability of $81.1 billion. But its retiree health care plan is only 3 percent funded and has a total liability of $19.8 billion.

    Georgia’s retirement plans had a total liability of $100.9 billion in 2010, and the state fell $32 billion short in setting aside money to pay for it…

    http://www.bizjournals.com/atlanta/news/2012/06/20/pew-georgia-retirement-benefits-85.html

  2. saltycracker says:

    Couldn’t open the link but in addition to beating our heads against the wall of the public worker’s pension tsunami – if they are so confident:

    1. Let the taxpayer in on the funds guaranteed returns
    or
    2. Take the funds off the taxpayer guarantee

    Georgia public pensions forecast a 7.5% return for their funds some local plans 8%.
    (and that will be woefully short according to many actuarians as few private businesses have anything like public pension plans)

    That return is guaranteed by the taxpayers of Ga.

    How about we allow the taxpayers to participate at that fixed rate. Since GA is so confident, they make a lot of money with better returns. I’ll put my money in tomorrow with the guarantee.

    If that is not acceptable how about we put the standard clause on the fund that all our investments have: There is no guarantee of the returns and the projected defined program will be adjusted in the event of negative market conditions or miscalculations on the part of available funds to meet payouts.

    Unfortuinately what we’ll hear as this eats more of the budget is that times are tough and we need to cut services.

  3. Dave Bearse says:

    “Incidentally, the pension fund for legislators had 128 percent of its needed investment.”

    That like a cattle call for quietly legislating a bump next session, as they’ll be year and a half away from the ballot box.

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