Cover:State Plan Sponsor of the Year: A Lesson in
The West Virginia Teachers' Retirement System comes
up with an unlikely solution to its financial problem:Â a
return to a defined benefit plan.
"We know that the only way to get to where we need
to be is to be flexible," says Anne Werum Lambright,
Executive Director of the West Virginia Consolidated Public
Retirement Board, which oversees administration of eight
public retirement plans. That attitude has come in
especially handy with the troubled Teachers' Retirement
System, which by 2003 had hit a funded ratio of just
of the West Virginia
Consolidated Public Retirement Board
"West Virginia faced an underfunding problem,
particularly in the Teachers' Retirement System, that
was far worse than any other statewide plan has
faced," says Keith Brainard, Austin, Texas-based
Research Director of the National Association of State
Retirement Administrators (NASRA). "That is the lowest
level for any public plan for a broad group of
employees." (West Virginia's other pension
plans—which include the Public Employees Retirement System,
the Judges' Retirement System, the Deputy Sheriffs'
Retirement System, Troopers Plan A, Troopers Plan B, and
Emergency Medical Services Retirement System—have different
funding setups and have not faced a similar crisis.)
To get finances back on track, the state changed course
in the Teachers' Retirement System (TRS) plan design and
funding approach, and it also has shifted the strategy of
the West Virginia Investment Management Board, which
oversees investments of the seven defined benefit (DB)
plans as well as other state money.
Lambright attributes the flexibility to a smaller
state's ability to build consensus quickly as well as to
the private-sector experience of many of the state staffers
involved. "Governor Joe Manchin brought in new people with
private-sector experience to lead this pension-funding
change, and he and they were able to get the legislature,
the unions, the participantsÂ, and the taxpayers on board
pretty quickly with responsibly funding the past promises
and providing for the opportunity for the [defined
contribution plan] members to participate in the defined
benefit plan," she says.
By 2008, the funding level of the Teachers' Retirement
System had risen to 51%. "Fifty percentÂ does not look like
a whole lot, but 50% is a big deal," Lambright says. "We
are no longer the bottom of the pile."
DC to DB to DC—then back
The teachers' system started in 1941 as a defined
contribution (DC) plan, before gradually morphing into a DB
plan in the 1960s, as legislators took steps such as
guaranteeing a minimum benefit. However, while the plan
design got converted to DB, the funding approach did not.
"Unlike PERS, which got funded actuarially each year,
they never got past, 'How much money do we need to pay
benefits this year?'" says Harry Mandel, the
Consolidated Public Retirement Board's actuary. The DB
plan did not convert to actuarial funding until 1991.