News Column

Recent study: West Virginia ranks in the middle of the pack on public pension debt

July 10, 2014

By Pamela Pritt, The Register-Herald, Beckley, W.Va.

July 10--In a recent report about public pension debt, study author Robert Sarvis points out that some states are using "bad math" when they calculate public pension debt, using an inflated discount rate.

Sarvis' report compared states from worst to best, and while West Virginia ranked low in some of the categories, it averaged in the higher middle of the pack at No. 20.

Deputy Commissioner of Revenue Mark Muchow said that's because the state has made "significant improvements in the last 20 years."

The report -- "Understanding Public Pension Debt" -- says that most states project a 7 or 8 percent return, which leads to lower government contributions in anticipation of making up the difference with high returns to close the gap.

Muchow said West Virginia uses a discount rate of 7.5 percent, but returns on those investments were, at least unofficially, double that.

"This past year somewhere in the neighborhood of 15 percent," Muchow said.

The pension fund has recovered, for the most part, from the recent recession, he said, and the state now realizes some pension funds that are nearly or fully funded, including the West Virginia State Police (Plan B) and judges. The teachers' retirement fund was at 58 percent as of July 1, 2013, up from 46 percent in 2010, and other state employees' retirement funds are funded at 80 percent, up from 75 percent, he said.

Pension funds are invested in a variety of ways, including stocks and bonds, he said.

"A number of teachers in the early '90s were not sure they were going to get their pensions," Muchow said. "Confidence in the system has been greatly enhanced in recent years."

West Virginia avoided a few mistakes made by other states, he said, because public employees have always contributed to their own retirement funds instead of a 100 percent employer contribution. State employees contribute 4.5 percent of their income toward their retirement, while West Virginia chips in 14.5 percent. Using the "Rule of 80," state employees can retire at 55 if their age plus contributing service equals 80 or more, or at 60 with five or more years of contributing service.

Also, West Virginia pensions do not include Cost of Living Adjustments, except for State Police (Plan A), Muchow said. COLAs make funding pensions more difficult, Muchow noted.

Muchow said the state's hiring freeze won't have much effect one way or the other on the fund, but demographics will.

"The ratios of active employees to retirees has been falling over time," he said. "State employment has not grown a whole lot."

According to the West Virginia Consolidated Public Retirement website, West Virginia has more than 36,000 active members and 23,460 retirees who receive benefits.

Harry Mandel, an actuary at the state retirement agency, said state pension plans must be funded for as long as the government entity exists. Mandel said the state retirement board has decided to stay on the same course it's been on for the past two years.

But that doesn't necessarily mean that the funds will reach 100 percent in the near future.

"You never really expect the pension fund to get to exactly 100 percent," he said.

The teachers' retirement fund is expected to get to that level in 2034, and for other public employees in 2035, he said.

Understanding Public Pension Debt was produced by the Competitive Enterprise Institute.

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Source: Register-Herald (Beckley, WV)

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