Industry News

On June 7, 2022, the Center for Retirement Research (CRR) at Boston College released its issue brief, Legacy Debt in Public Pensions: A New Approach. The brief is the second in a series related to “legacy debt” and provides a historical perspective of public pension underfunding. In April 2022, the first brief, Forensic Analysis of Public Employee Pension Funding: A Tool for Policymakers, discussed one of the major contributors to underfunding known as legacy debt in which historical unfunded liabilities accumulated before plans adopted modern funding practices.

Some of the key findings include:

• A new approach for legacy debt, as presented, would separate legacy debt from other unfunded liabilities intended to spread the legacy cost over multiple generations as well as properly identify fixed vs. variable costs; and
• Rather than using the assumed return on assets to calculate liabilities and required contributions, the new approach would also use the municipal bond yield.

According to the CRR, “while the new approach will increase annual costs somewhat in the short term, it involves a more rational allocation of costs that results in improved intergenerational fairness, better resource allocation by government, and – ultimately – greater public credibility.”

The brief is available here.