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Letter to the editor 'The correct conclusion: Pensions well funded'

You can hardly open a newspaper or magazine, or read a current events website or blog, these days without reading about how public pensions and other government benefits are going to bankrupt our nation’s governments.  While I believe the facts cited and the conclusions drawn in many of these reports are often exaggerated, I know that there is more to the story than what is typically reported when it includes Indiana.  I recently submitted the following letter to the editor of The Indianapolis Star in response to the article on April 26, “Report finds state worker pension funding slipping more.” This letter was published by the Star on April 29.

The correct conclusion: Pensions well funded

Written by: Terren B. Magid  This is in response to Maureen Groppe's April 26 article, "Report finds state worker pension funding slipping more." While accurately reporting the conclusions of the Pew Center on the States report on the recession's impact on state pension funding in general, I was disappointed the story did not critically analyze those conclusions.

The reporter writes that "Wisconsin and New York were the only states to fully fund their pensions in 2009." However, even a cursory look at the report indicates that Indiana fully funded its funds, paying 103 percent of required contributions in 2009. Had the reporter researched beyond the summary conclusions, she would have discovered that the majority of Indiana's public funds are among the better-funded public pension systems. The methodology used in the Pew report lumps all public pension funds of a state into a single percentage. While it is understandable that this may help readers assess the overall liability of a state to fund its total pension obligations, this methodology has shortcomings.

Specifically, it obscures the true funded status of each particular plan, many of which are very large and well funded. Moreover, because the methodology utilizes an aggregated funded status by state, the report is unable to address particular remedies states may have implemented, as in the case of Indiana, to resolve underfunding in particular plans. The vast majority of the assets and liabilities of the Indiana public retirement system reside in the Indiana Public Employees Retirement Fund (PERF), the Indiana Teachers' Retirement Fund (TRF) and the 1977 Police Officers' and Firefighters' Pension and Disability Fund (77 Fund). Of these, PERF and the 77 Fund are well funded with statuses of 85.2 percent and 92.7 percent, respectively, well above the 80 percent threshold considered by most actuaries to be the mark of a well-funded plan. TRF comprises two funds, the pre-1996 fund and the 1996 fund.

The 1996 TRF fund is also well-funded at nearly 95 percent. The pre-1996 fund was not required to be actuarially pre-funded. In other words, before 1996, money to pay benefits came directly from the state general fund as retirement benefits were to be paid. When the pre-1996 fund is combined with the other Indiana funds, it leads to the 67 percent funded status reported in the Pew report for Indiana. Recognizing that the growing liability for teacher retirements could not be sustained without setting aside money to pay for it, the General Assembly established the 1996 TRF fund.

At the same time, it created a pension stabilization fund to make up for the unfunded liability created by the pre-1996 plan. While the pre-1996 liability remains significant, the stabilization fund is a sound solution to resolve the issue over the next 30 years should the state remain disciplined in making contributions as it has over the last 15 years. I applaud The Star's efforts to bring the condition of public pension funds to the attention of its readers.

However, the Star also has an obligation to dig deeper to ensure that its readers have a complete and accurate understanding of the data and analysis. Magid, an attorney, is former executive director of the Indiana Public Employees' Retirement Fund. For more information about pension funding and fiduciary responsibility, contact the Labor and Employment Practice Group at Bingham Greenebaum Doll.

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