Pension board contention
By BILL SHEFFLER | The San Diego Union Tribune
Those who aren’t already immersed in actuarial science may find reviewing the basics of retirement-plan funding worthwhile.
The cost of a retirement plan is paid for in installments over the working life of each employee. Each installment is invested and the income from those investments reduces the total cost of his pension to him and the city. This investment-income portion normally amounts to about 80 percent of the total cost of a worker’s benefits.
If regular installment payments are not made, the amount of investment income is reduced and the cost of the benefits to the employee and the taxpayers rises. Since the income from investments is added in over a long period of time, the cost of the plan increases exponentially when installment payments are missed. In short, a $100,000 payment skipped today would grow to a $215,000 payment in 10 years.
Many state and local governments have delayed, skipped or reduced payments to their retirement plans. They are usually prohibited from keeping money they should pay into the retirement plan because doing so is considered forced loans from the retirement plan to its state or local government sponsor.
The tragedy is that state and local taxpayers, who ultimately bear the plan’s costs, may have to make up not only the missed payments but the interest those payments would have earned had the funds been invested.