Congressman Devin Nunes (CA-22) announced today the introduction of the Public Employee Pension Transparency Act in the House of Representatives. Companion legislation will be introduced in the Senate in the coming days.
First introduced by Rep. Nunes in December 2010, the House legislation requires enhanced transparency for state and local pension plans while prohibiting the federal government from bailing out those systems.
The bill, whose principal authors also include Budget Committee Chairman Paul Ryan (WI-1), Senator Richard Burr (NC), and Oversight and Government Reform Committee Chairman Darrell Issa (CA-49), has been endorsed by a wide array of watchdog groups and other organizations, including Americans for Tax Reform, the Council for Citizens Against Government Waste, the American Conservative Union, the National Taxpayers Union, the U.S. Chamber of Commerce, Free Enterprise Nation, and the National Federation of Independent Businesses.
Principal House author Devin Nunes offered the following statement:
"Often hidden by opaque accounting practices, the costs of public pension funds are driving an increasing number of states and municipalities toward insolvency. This bill will increase the funds' transparency and eliminate deceptive accounting practices that are already shunned in the private sector, giving the American people a clearer understanding of these funds' true fiscal condition."
Principal Senate author Richard Burr:
"For too long, taxpayers and government employees have been denied information about how badly government worker pension plans are underfunded. This bill would implement uniform standards for public-employee pension funds so that citizens can accurately judge the performance of state and local authorities in managing the public trust. This information is only for the purpose of disclosure; the rights of states and local governments to fund and control their own plans is maintained. Additionally, the bill's clear prohibition of a federal bailout of state and local government pension plans empowers local authorities to make their own reforms by rejecting the illusory notion that problems can be ignored or hidden and later dumped on taxpayers."
Budget Committee Chairman Paul Ryan:
"Taxpayers deserve an honest account from their state and local government of their financial liabilities, including the cost of pension plans for public employees. The Public Employee Pension Transparency Act will make government more accountable by shining a light on these obligations, and I'm honored to join Representative Nunes in sponsoring this common-sense legislation."
Oversight and Government Reform Committee Chairman Darrell Issa:
"A lack of transparency creates an ideal environment for state and local officials to pander to both public employees and taxpayers with overly optimistic assessments of unfunded liabilities. Most won't be in office when the time comes to face the consequences of over-promising and underfunding benefits for decades. The key to addressing this problem is shining a light on the financial health of pension systems and making clear that federal taxpayers will not pick up the bill for reckless mismanagement in state and local government -- this legislation does both."
Most state and local governments offer their employees defined benefit pension plans. These plans currently promise retirement pensions to about 20 million active employees, while another 7 million retirees and their dependents are receiving benefits.
According to leading financial experts, the enormous debt reported by public employee pensions fails to convey the true size of the debt confronting taxpayers because public pensions calculate their liabilities using unreasonably high discount rates. In many instances, they also distort the fair market value of assets in order to hide debt.
Independent studies have estimated a total shortfall in public employee pensions of up to $4 trillion, with a recent study by Morningstar finding that twenty-one state pension systems are funded below fiscally sound levels.
The Public Employee Pension Transparency Act will establish 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 will provide realistic rates of return and tie assets to more reasonable fair market valuations.
State and local officials should welcome increased public pension transparency as a tool to increase public finance soundness. However, plan sponsors may decide against reporting this information. To incentivize transparency, the bill links the creation of new federally subsidized debt at the state and local level with an honest accounting of current public pension liabilities. Failure to report will result in the suspension of all federal tax-exempt bonding authority for jurisdictions whose employees are covered by the non-compliant plan.