Summary

Pension obligations owed to current D.C. employees and retirees exceed the District's pension fund assets by nearly $5 billion. Further, the percentage of pension obligations covered by assets is lower than that reported by most of the comparable plans GAO examined. This inadequate funding results primarily from the federal government's transferring a $2 billion unfunded liability for pension benefits to the D.C. government more than a decade ago. There is no legal requirement to amortize this unfunded liability. Mandated federal and District contributions to the retirement funds, through 2004, will not stop the unfunded liability from increasing. It will reach an estimated $7.7 billion by that year. Under the D.C. Retirement Reform Act, the unfunded liability will never be eliminated, although the formula for determining District contributions will change beginning in 2005 and the liability should stop increasing, assuming the District makes the required contributions. In 2005, under the changed formula, the District's annual contribution could represent about 15 percent of the revenue collected by the District, compared with about eight percent in 1991.

GAO found that: (1) in 1979, Congress transferred responsibility for $2 billion in unfunded pension benefit debt to the District of Columbia; (2) since 1980, the District's total unfunded liability has grown to $4.9 billion; (3) interest accounted for 75 percent of the increase in the unfunded liability; (4) benefit changes and actuarial losses also contributed to the increase in the District's pension liability; (5) no legal requirement exists to amortize the District's debt; (6) annual federal contributions total $52.1 million, while the District contributes on a pay-as-you-go basis; (7) current payment levels are increasing the unfunded liability, which is expected to reach $7.7 billion by 2005; (8) the unfunded liability is jeopardizing the financial security and solvency of the District government; (9) plan benefits for District retirees are similar to those of other public employee retirement plans; and (10) the federal government reimburses the District, on a pay-as-you-go basis, for pension payments to members of the U.S. Secret Service and U.S. Park Police who participate in the District's retirement plan for police officers and firefighters.