Today, U.S. Senators Richard Burr (R-NC), Tom Coburn (R-OK), and John Thune (R-SD) introduced the Public Employee Pension Transparency Act, legislation that will enhance transparency for state and local pensions and establish a clear federal prohibition on any future public pension bailouts by the federal government.
Congressman Devin Nunes (CA-21), Budget Committee Chairman Paul Ryan (WI-1), and Government Reform and Oversight Chairman Darrell Issa (CA-49), will introduce companion legislation in the House this week.
"For too long, taxpayers and government employees have been denied information about how badly government worker pension plans are underfunded. My bill would simply shed some light on these enormous liabilities. This information is only for the purpose of public disclosure; it does not tread on the rights of states and local governments to fund and control their own pension plans," said Senator Burr. "My bill also prevents a federal bailout of state and local government pension plans, empowering local governments to make the reforms needed to ensure problems cannot be dumped on taxpayers down the road."
"This bill brings much needed transparency to the finances of public employee pension funds. Taxpayers and government employees currently do not have the tools necessary to identify mismanaged pension funds. This bill would change that by incentivizing states and local governments to submit reports detailing financial costs and solvency of public employee pension plans," Dr. Coburn said. "This legislation also ensures taxpayers will not be required to bailout mismanaged pension funds. Shielding taxpayers from funding bailouts and providing the tools necessary for transparent reporting are two ways to protect the health of pension funds that will benefit both taxpayers and public employees alike."
"State and local government pension liabilities across the country are currently being understated and taxpayers have a right to know the true dimensions of this looming problem," said Senator Thune. "It is crucial that states provide more transparency and accountability regarding their pension liabilities and take necessary steps to get their balance sheets in order. While my state of South Dakota has a well-run pension plan that is not facing insolvency issues, there are a number of states that will exhaust their pension funding by 2020. Taxpayers should not be left on the hook for the unsustainable promises made by state and local governments. I hope my colleagues will join us in supporting this common-sense legislation to increase government transparency."
The Public Employee Pension Transparency Act establishes new transparency rules, allowing plans to report their existing financial data but also requiring them to report their methods and assumptions. Public employee pension plans will also have to report their liabilities using a uniform accounting standard that provides realistic rates of return and ties assets to more reasonable fair market valuations.
The bill also specifically states that the federal government will not assume responsibility for any current or future shortfall in a state or local authority's pension plan. This is a clear policy statement that will help state and local governments address their very real pension problems. No longer can proponents of the status quo claim that there will be an endless source of contributions from taxpayers to keep plans running no matter how badly managed or underfunded. States will now have the moral standing to bring all stakeholders together to solve their problems. Taxpayers are stakeholders and now they will truly know what they are on the hook for in the context of those discussions.
Independent studies demonstrate that public employee pensions had approximately $1.94 trillion set aside to pay retirement benefits promised to government workers as of 2008. However, these pensions have liabilities of $5.17 trillion, which means that they are underfunded by $3.23 trillion. Ten states are projected to run out of pension funds by 2020, and the vast majority of states will have exhausted their pension funds by 2030.