November 7, 2008

States Try to Stem Losses in Public Pension Funds

By Kathy Chu

As the volatile stock market eats away at the assets of public pension funds, states are moving aggressively to mitigate their losses.

Some states are raising the amount that employers and employees contribute to traditional pensions, which guarantee a set monthly payment -- based on employees' salary and job tenure -- in retirement. Others are freezing benefits or scaling back cost-of-living adjustments.

The moves come amid states' ballooning budget deficits. Pensions' poor investment performance threatens to aggravate states' fiscal woes.

"When revenue is down and pensions are suffering investment losses, the budgets of governments are squeezed," says Dave Slishinsky, a principal at Buck Consultants, which advises states on pension plans.

In the 12-month period ended Sept.30, public pension plans lost 14.9%, according to Wilshire Associates, a consulting firm.

How states are shoring up plans:

*Wisconsin recently notified participants in its state and local employees' plan -- which combines features of a traditional pension and a 401(k) -- that it may have to reduce monthly payments for the first time ever if stock market losses continue.

"Our members share the risk and reward" of the market, says David Stella, secretary of the Wisconsin Department of Employee Trust Funds.

Monthly payments, however, will not fall below the amount workers got upon retirement.

*The Arizona State Retirement System will likely raise contributions for employees and employers next year because of poor investment performance in the fiscal year ended June30, says David Cannella, a spokesman for the system.

*The California Public Employees' Retirement System, the nation's largest public pension, says it may have to raise employers' contributions if investment performance doesn't improve by June30, 2009, its fiscal year end.

*Baltimore Mayor Sheila Dixonhas proposed axing a costly feature in firefighters' and police officers' pension plan that can give big, permanent benefit increases in years when the market is doing well. Dixon proposes an annual fixed increase of 1.5% in benefits, and an additional (but limited) bump up when stocks do well over time.

*The Iowa Public Employees' Retirement System has boosted its cash position to $200 million from $25 million by holding onto employer contributions and cash from maturing bonds. The cash cushion means the pension fund won't be forced to sell assets in a distressed market, CEO Donna Mueller says. (c) Copyright 2008 USA TODAY, a division of Gannett Co. Inc. <>