That was the word in a new study of the state of public pensions done by consultants The Segal Company, which said that many plans have had to pump in cash infusions “just when such increments are least affordable.”
States and other public employers are also facing a general revenue slowdown, which has left many with sizable budget deficits and a more dificult time finding funds to contribute to their pension programs.
Coming up with money to fund post-retirement health care coverage has also been a challenge for many public-sector officials, Segal said.
To get back on what Segal calls “an even keel,” public employers can consider:
- staff cutbacks accomplished with a limited time availability to take advantage of offers such as severance pay, etc. Segal cautioned that employers have to ensure the early departing employees don’t produce a pension cost that effectively wipes out the reduced staffing savings.
- helping early retirees pay for health coverage through a temporary annuity retirees can use until they go on Medicare
- offering partial lump-sum payments drawn from a portion of the employee’s accrued pension benefits
- temporarily suspending their defined contribution match and starting a defined benefit alternative, which Segal said is cheaper for the employer.
After conducting a cash-flow study and asset-liability projections, Segal said public plan sponsors can also:
- encourage employees to take full advantage of EGTRRA’s move to increase the allowable plan savings amount for the public sector
- look into a phased-retirement program where full-time workers cut back hours without necessarily triggering the need for replacement staffing
- review investment strategy with future liquidity requirements in mind while reducing portfolio risk exposure.
- review whether a plan’s actuarial assumptions need to be adjusted.
“Undertaking formal strategic planning across agencies and departments is logistically demanding, but invaluable in formulating a comprehensive response to current and future challenges,” Segal wrote.