Changing the way government employers report pension plan performance could increase their stability and overall fiscal realism – or force governments to cut back on valuable social programs for no particularly good reason.

Witnesses gave those assessments today during a House Ways and Means Committee oversight subcommittee hearing on the public employee pension funding controversy.

Rep. Charles Boustany Jr., R-La., the subcommittee chairman, is supporting H.R. 567, a bill that could require government employers to report fair market values of plan assets and the value of plan liabilities using Treasury yields as the discount rate.

Today, Boustany said, it is not clear whether the amount of underfunding is $700 billion or about $3 trillion, but it is clear that better information is needed.

Colorado Treasurer Walker Stapleton, who serves on his state’s retirement plan board, noted that his state’s plan now sets its official rate of return at the “unrealistic and unachievable” level of 8%.

The current “riskless rate” is about 5%, witnesses said.

The current official unfunded liability is about $21 billion, but decreasing the discount rate to a realistic level would make the total much higher, Stapleton said.

Iris Lav, a senior advisor at the Center on Budget and Policy Priorities, Washington, said government employers can handle the shortfalls with relatively modest increases in pension plan contributions.

Pension plans have suffered from drops in funding levels because of the recession, and they already have recouped about two-thirds of the losses, Lav said.

Shifting to defined contribution plans could be more expensive for many states than the current defined contribution systems, and use of fair-value accounting could make contribution levels more volatile and divert funding away from other government programs, Lav said.

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