Congressman Charles W. Boustany, Jr., MD, (R-LA), Chairman of the Subcommittee on Oversight of the Committee on Ways and Means, today announced that the Subcommittee will hold a hearing on the transparency and funding of State and local defined benefit pension plans.  The hearing will take place on Thursday, May 5, 2011, in Room 1100 of the Longworth House Office Building, beginning at 9:30 A.M.

In announcing the hearing, Chairman Boustany said, “Whether the underfunding of State and local pension plans is $700 billion or over $3 trillion, it is a serious concern for workers and retirees, for State and local governments, and for taxpayers in general.  The Subcommittee needs to understand how public plans are currently calculating their assets and liabilities, not just so we can get a clearer picture of how underfunded those plans really are, but also to determine whether there is adequate transparency in how these plans are reporting their shortfalls.  Given that some have raised the specter of a Federal taxpayer bailout to cover the unfunded liabilities of these State and local plans, it is important for the Subcommittee to review this issue and to consider possible approaches to ensure that no such Federal taxpayer bailout is ever needed.”

BACKGROUND:

Many have expressed increasing concern that State and local defined benefit pension plans (i.e., “public plans”) have become dangerously underfunded.  Based on the plans’ own accounting measures, estimates suggest that as of 2009 they faced an aggregate shortfall of between $700 billion and $1.3 trillion.  Many economists, however, have argued that these plans are improperly measuring their assets and liabilities in a way that significantly understates the true scope of the problem.  Indeed, several recent studies have concluded that the plans may actually be underfunded by more than $3 trillion.  

Growing concerns about the financial health of these public plans have led some public officials to suggest that a Federal bailout of these plans may be appropriate.  The proposed FY 2012 State budget by Illinois Governor Pat Quinn (D-IL), for example, explicitly suggests that Illinois may seek a Federal guarantee of a new debt issuance to cover its unfunded pension plan liabilities.

In response to concerns about the financial health of these public plans – and about possible efforts by State and local governments to secure a Federal taxpayer bailout of such plans – Rep. Devin Nunes (R-CA), a Member of the Committee on Ways and Means, has introduced the “Public Employee Pension Transparency Act” (H.R. 567).  This legislation is intended to enhance transparency in this area by encouraging public plans to disclose: (1) various plan funding data using their own actuarial assumptions, including a statement of those assumptions, and (2) the fair market value of plan assets and the value of plan liabilities using Treasury yields as the discount rate.  While H.R. 567 would not impose any new standards on public plans with respect to actual funding requirements, State and local governments failing to make the disclosures proposed under the bill would lose their ability to issue debt that is tax-preferred under Federal income tax law.  Additionally, H.R. 567 provides that the United States would not be liable for any obligation relating to funding shortfalls in State or local pension plans.

For the full hearing advisory click here.