1. Current Developments in U.S. Public Pensions
Charles E.F. Millard
Managing Director
Global Head of Pension Solutions
Citigroup

2. Major Challenges Facing U.S. Public Pensions
GASB accounting change
Changing pension structure
Shift from DB DC, Hybrid, Cash Value
Reducing benefits, changing retirement age
Reduce, or eliminate COLAs
Lawsuits
Chronic underfunding
Aggressive estimated return / discount rate
Funded status probably worse than it appears 1

3. Pension underfunding is a very big problem
“Reforms” will not Solve the Problem
Source: pensiontsunami.com/Tom Meyer 2

4. A lot of Money no matter how you look at it
US public plan funded status based on different discount rates
Aggregate State and Local Unfunded Pension Liability under Alternative Discount Rate Assumptions, 2012, in Trillions
Source: DCIIA: Boston College Center for Retirement Research 3

5. The Real Problem: States Are Failing To Make the Necessary Contributions…
Percent of Annual Required Contribution Paid,
Source: DCIIA: Boston College Center for Retirement Research 4

6. …and That is only Getting Harder
Annual Required Contribution as a Percent of Payroll,
Source: DCIIA: Boston College Center for Retirement Research 5

7. Currently reported vs. GASB proposed funded ratios
Aggregate funded ratios for state and local plans: Currently reported vs. GASB proposals,
But Will It Work?
Source: DCIIA: Boston College Center for Retirement Research 6

8. GASM Decision-Making and Reporting … Complex
Employers, Actuaries, Auditors will have to make projections
Based on
Stated policies, statutes
if none, then last five years
Past patterns
Professional judgment
Responsible entity is issuer of the financial statements
Can be pension, state/municipality, or both 7

9. How will Actuaries respond to Pressure?

10. From Politicians? 9

11. “From Now on We Will Make Our Full Pension Contributions”
Source: by Medi Belortaja 10

12. From Peers?
Source: electriciantalk.com 11

13. From Public Employees?
Source: theguardian.com 12

14. Pension Underfunding appears not to hurt Municipal Bond Pricing…
“Yet, we find no evidence that municipal bond markets are pricing the risks
to states’ fiscal health arising from these large obligations.”
Source: DCIIA: Boston College Center for Retirement Research 13

15. … but maybe it should
Source: truthdig.com 14

16. … and Perhaps it Soon Will.
Moody’s Adjustments to Pension Data
We calculate the Adjusted Net Pension Liability (ANPL) for local governments as the difference between the actuarial value of a pension plan’s assets and its adjusted liabilities. We adjust reported pension liabilities of US state and local governments by applying a bond index rate to future liabilities in order to discount the present value of these obligations. We also distribute the liabilities of multiple-employer cost-sharing plans to participating governments based on their pro rata share of contributions. We expect to utilize the market value of assets for local governments in accordance with expected disclosure improvements by the Governmental Accounting Standards Board (GASB).
To assess pension burden we compare the ANPL to issuers’ operating revenues and to the size of their tax base, measured by full value of taxable property. For greater detail on our adjustments and their application in our ratings methodology, please refer to our reports “Adjustments to US State and Local Reported Pension Data,” released in April 2013 and “Request for Comment: US Local Government General Obligation Bond Methodology” released in August 2013. 15

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efficiency, renewable energy and mitigation