Funding gaps. Benefit cuts. Fiscal reform. Budget repair. No matter where you live today, it’s hard to ignore the challenges that many state and municipal pension systems are facing. As a registered investment advisor, you are faced with myriad questions on the topic from clients who are seeing the headlines everywhere.
Some reports have called it a crisis, a tsunami and even a sinkhole. However you view public sector pension (defined-benefit) programs, one thing is certain—never before have they received so much attention. Volatile market conditions in recent years have only amplified the situation.
According to the U.S. Census Bureau, some 20 million employees and seven million retirees and beneficiaries are covered by 2,500 state and local pension plans. Given the sheer impact these obligations have on budgets, tax burdens and workers’ expectations, it’s no wonder the issue often creates intense and polarized debate. Policy makers and government managers have undoubtedly given some thought to their own situations: How long can their pension program continue to pay promised benefits? Is it time for a change? If so, what are the options?
These are complex questions, with no easy answers. Each situation is unique and each outcome different. However, what may be the same for every public sector employer with a retirement program is the need to do a comprehensive assessment and evaluation. Your clients rely on you as a resource for answers on how best to proceed. Having a sound understanding of the different options available to your clients can put them at ease and demonstrates your value as a trusted investment advisor.
Turning to the tools and guidance available in the industry can help you gain a better understanding of the process to counsel your clients in developing a systematic and analytical process for decision making. The key to this process is remaining objective, “solution-neutral” and considering the various stages of the decision-making approach:
Pre-planning. No large undertaking should begin without proper planning. Preparation helps employers lay the groundwork for a retirement program analysis. This phase starts with helping your clients identify relevant stakeholders and important information about the role they play in developing a workable solution. Typically, these groups will encompass members of the community, current employees, retirees receiving benefits, taxpayers, unions and management.