Pension Questions To Ask Your Agency’s CFO, Actuary & Auditor

The following list of questions, compiled by the Reason Foundation, offers the opportunity to develop an in-depth understanding of any public agency pension plan. This list can be useful to any local elected official, journalist, or citizen activist who wants to know much more about how pension obligations affect the financial health of their city, county, or other public agency. These questions were compiled by Lance Christensen, formerly with the Reason Foundation, who is now Chief of Staff for State Senator John Moorlach. Christensen presented these questions as part of a day-long training and networking event for local public officials sponsored by the California Policy Center on Dec. 2, 2017 in San Ramon, California.

PENSION QUESTIONS TO ASK YOUR AGENCY’S CFO, ACTUARY, OR AUDITOR

Legal Framework

1 – Which laws, charters or collective bargaining agreements govern pension systems?

2 – If dealing with a city or county, is the jurisdiction a “general law” or a “home rule/charter city/county”?

3 – What have been the most recent changes in the law (legislation or ballot initiative)?

4 – Are there constitutional protections or judicial precedents (of any part of the system) that need special attention?

5 – If there has been litigation regarding pension systems, what, if any, are controlling precedents or requirements mandated by previous court settlements or cases?

6 – Who controls changes to the pension benefits? Pension board? State legislature or local governing body? Do taxpayers have access to the ballot initiative or a referendum on pension benefit levels or increases?

7 – Have there been any labor contracts or pension benefit packages that were negotiated and agreed upon that lack or do not conform with required municipal code or state statutes?

Plan Structure

1 – What types of plans are offered? Is there only defined benefit, or is there a hybrid with a defined benefit option as well?

2 – What are the pension calculation formulas?

3 – How is “final average salary” calculated?

4 – What are the contribution requirements for the employer and employees?

5 – What is the cost of living (COLA) structure?

6 – What are the allowed retirement ages?

Governance Structure

1 – Who or what governs the system—is it an appointed board?

  • What are the requirements for membership on the pension board?
  • Are board members appointed or elected? By whom?
  • Are board members chosen for political considerations or because of a specific professional qualification or some combination of the two?
  • Have the board’s previous activities and expenses been audited? Recently? Ever?

2 – What are the system’s former and current collective bargaining agreements, memoranda of understanding or labor negotiation procedures?

3 – What is the target funding ratio for the plan?

4 – Is information on the pension plan transparent and readily available? Is there a website providing easy access to detailed information about the pension plan?

5 – What are the financial controls for the pension plan? Are they being followed? How do they stack up against those required of private pension systems?

6 – What are the investment targets used by the plan? What is their track record at hitting investment return goals?

Sustainability and Fiscal and Budgetary Impact

1 – What is the current status of the fund—in real and future dollars— including all the liabilities on the system?

2 – What are the assumptions that play into these numbers?

3 – Are there any cost escalators or cost of living adjustments (COLAs) that need to be considered or that are embedded in the system?

4 – Is there an extraneous benefit or a preservation of benefit for which the pension system is paying?

5 – Are your jurisdiction’s disability payments routed through or comingled with the pension system? If so, how are these accounted for? Are disability payments counted in the unfunded liability valuation?

6 – How has your jurisdiction handled its annually required contribution (ARC) payments?

7 – What percentage of the jurisdiction’s budget has been ARC payments during the past 10 years? Is the system allowed to contribute less than 100 percent of its ARC payment in a particular year?

8 – What is the discount rate associated with each of the ARC payments? How do those discount rates compare with actual returns on investment in previous years?

9 – What are the ranges and averages for payouts, including salary, health care and other benefits for the following classifications of pensioners? (a. Full-time b. Part-time and/or seasonal c. Retired annuitants d. Others)

10 – How many of these pensioners have other supplemental pension funds, including a defined contribution plan with contributions from the jurisdiction?

11 – What are the comparative pay ranges for similar jobs and classifications? How do the jurisdictions’ and retirees’ benefits compare?

12 – When the jurisdiction has returns above expectations, what is done with those excess funds?

13 – What is the ratio of current employees versus retired employees supported in the jurisdiction’s pension plan?

See more questions to ask about pensions in Reason Foundation’s, “Pension Reform Handbook: A Starters Guide for Reformers,” http://reason.org/news/show/pension-reform-handbook-a-starter-g.