D.C.’s pensions are looking pretty

March 11, 2013

(Pew Center on the States)

In case you were seeking further proof that the District of Columbia has perhaps the most enviable municipal finances in the nation, the Pew Center on the States on Monday released an analysis of employee pension funding among 30 of the country’s largest cities.

D.C. alone had a fully funded municipal employee pension plan in fiscal 2009, the year chosen by Pew researchers for their comparison. It in fact carried a $161 million surplus — representing reserves covering 104 percent of anticipated obligations. Compare that to New York, with its $44.1 billion liability, or Chicago’s $11.9 billion shortfall. Even cities closer to D.C’s size are in much more dismal shape: Boston’s pensions were only 60 percent funded in 2009, with a $1.2 billion shortfall. Denver and Seattle were somewhat better, at 87 percent and 89 percent funded, respectively.

In the years since the Pew comparison, the D.C. pension situation has remained rosy in spite of the nationwide economic stagnation: According to the most recent actuarial analysis — which incorporated new, less-optimistic investment growth projections — the police and fire retirement plans remain fully funded, while the teachers’ plan is 94 percent funded. (All other D.C. employees are on defined-contribution 457(b) plans.)

Nota bene: What might appear to be the result of the city’s good fortune or good management is just as much an artifact of its unique status as the national’s capital.

Prior to 1997, city employee retirement obligations were paid essentially on a pay-as-you-go basis, a consequence of the fact that the federal government handed the city its pension obligations at the dawn of home rule in the 1970s without endowing a trust fund to pay for them. So, in effect, every year the city had to not only pay its active payroll but also pay the retirement checks of every pension beneficiary. By the mid-1990s, the city was looking at a $5 billion unfunded liability.

Under the control-board-era Revitalization Act of 1997, Congress had the federal government assume the city’s old liabilities and ordered the District to create funds from scratch for subsequent pension benefits — and, crucially, fund them wholly each year. So it helps, to a great degree, that the city has the benefit of congressional oversight and relatively young pension funds compared to its peer cities.

Despite the happy state of the city’s pension reserves, at least one politician sees doom and gloom in the future: D.C. Council member David A. Catania (I-At Large) introduced a bill in 2011 that would significantly limit the yearly cost-of-living adjustments for pension beneficiaries, warning that increasing pension obligations could complicate the city’s overall fiscal picture. The bill, however, went nowhere, and Catania has not reintroduced it in the new council term.

But the pressures are real: In the upcoming budget, according to actuaries, local officials will have to devote an additional $43 million in general fund revenues to pensions to keep them fully funded — that’s $142.4 million for fiscal 2014 versus $99.6 million in the current year.

Mike DeBonis covers local politics and government for The Washington Post. He also writes a blog and a political analysis column that runs on Fridays.
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Mike DeBonis · March 11, 2013