Considerations for Public Pensions’ Response to COVID-19 Issues

The American Academy of Actuaries hosted on Thursday the second part of its webinar on retirement plan coverage in America, centered on public defined benefit (DB) pension plans and the unique issues they face during COVID-19.

“Public plans provide retirement security for over 25 million Americans, and that’s why it’s a major component of the retirement plan system,” noted Sherry Chan, vice chairperson of the Pension Practice Council at the academy. “COVID-19 has infiltrated through all of our lives, and even affects pensions,” she continued.

The effects of the coronavirus are impacting, and will continue to affect, the public pension employee population. More than 80% of public employees have access to one or more public pension plans, said Todd Tauzer, vice president and actuary at Segal, with most plans jointly funded by employers and employee contributions and invested for the long term.

The webinar asked what public employers should do during the crisis. Randall Dziubek, deputy chief actuary at the California Public Employees’ Retirement System (CalPERS), explained that CalPERS is confronting the issue in two ways. The first step is educating its employers and employees on contribution limits. Dziubek said CalPERS employers are asking whether contribution limits can be relaxed during this time, and whether cost-of-living adjustments (COLAs) can be suspended. It’s important for employers to understand the repercussions of these actions, he adds.

“There are downfalls to that. What you don’t pay now, you’ll be paying at a higher rate later,” Dziubek explained.

Second, Dziubek said CALPERS is focusing on the potential investment loss that will occur because of the pandemic and how it will affect its employees.

Chan, who is also the chief actuary for the city of New York, added that benefit protection, new methods of valuing liabilities and movement toward risk management can improve public plans’ financial health. For example, Chan says there is a drive toward more plans paying an actuarially determined contribution (ADC)—a recommended contribution to a pension plan for the reporting period. “Plans are contributing more into their plans over time, and we are seeing a trend that they are funding it on a higher level,” she noted.

Additionally, Chan stated there is a movement toward more risk analysis within the New York City Retirement Systems (NYCRS). Valuation reports have been expanded to include an extra risk and uncertainty section, and five-year projections were also provided to the New York City Office of Management and Budget.