March 2009

Cover:State Plan Sponsor of the Year: A Lesson in Funding

"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 18%.

Anne Lambright 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 participants­, 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 percent­ 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.