Legislation has been introduced in the Senate that could have significant consequences for public pension plans.
The Puerto Rico Assistance Act of 2015 (S. 2381), was introduced by Sen. Orrin Hatch (R-UT), Chairman of the Senate Finance Committee, and cosponsored by Sens. Grassley (R-IA) and Murkowski (R-AK), and is generally intended to address Puerto Rico’s debt crisis, which has been exacerbated by severely underfunded plans for Puerto Rico public employees.
However, it also includes the Public Employee Pension Transparency Act (PEPTA) (H.R. 1628), which would impose new disclosure obligations on state and local governmental plan sponsors, as well as a portion of Hatch’s Secure Annuities for Employees (SAFE) Retirement Act (S. 1270) that would create a new type of plan design for state and local government retirement systems.
A Groom Law analysis says that the legislation would require sponsors of state and local governmental pension plans to file with the Treasury Department a yearly report including:
- the plan’s funding status;
- contributions made to the plan that year;
- projections, for each of the following 20 years, of: (1) the amount of annual contributions; (2) the fair market value of plan assets; (3) current liability; (4) the funding percentage; and (5) other figures specified by Treasury regulations, as well as a statement of the assumptions and methods used in reaching these figures;
- a statement of the actuarial assumptions used for the plan year;
- the number of participants who are active, retired or separated from service and receiving benefits, and retired or separated from service and entitled to future benefits;
- the plan’s investment returns for the plan year and preceding five plan years;
- a statement of the degree to which the plan sponsor believes unfunded liabilities will be eliminated; and
- a statement of the amount of pension bonds outstanding.
Groom notes that the calculation of liabilities would generally be required to be based off of the U.S Treasury obligation yield curve, which would generally be a lower rate than under the new GASB rules, thus normally presenting a higher amount of liabilities than under GASB accounting.
Section 203 of the Puerto Rico Assistance Act of 2015 would create a new type of pension plan, the “Annuity Accumulation Retirement Plan,” available to sponsors of state and local governmental plans. Under those plans, an employer would pay a premium each year, in an amount equal to a fixed percentage of payroll, to a state-licensed life insurance company, and employees would receive an individual, deferred fixed income annuity contract each year from the life insurance company.
