Share:
House Co-Sponsorship Memoranda
House of Representatives
Session of 2013 - 2014
Regular Session
MEMORANDUM
| Posted: | May 14, 2013 03:28 PM |
|---|---|
| From: | Representative John D McGinnis |
| To: | All House members |
| Subject: | Amend Annual Financial Reports of SERS & PSERS |
| I will soon be introducing a bill to require SERS and PSERS to present a mark-to-market balance sheet in their annual financial reports. In addition to reporting the market value of assets, the balance sheet will report the market value of liabilities based on the yield-to-maturity of the 20 year zero-coupon U.S. Treasury STRIP security. Currently in valuing their liabilities, our state pension systems apply GASB 25, which allows liabilities to be discounted at the expected rate of return on pension assets. This runs counter to economic reality and sound financial practice as asset returns are highly uncertain and the liabilities that have been promised have the highest priority of government attention. Proper financial theory requires that future cash flows be discounted based on their risk. Since promises to pensioners have the full backing of government revenues, the appropriate discount rate is one on a par with the risk-free rate of return represented by the U.S. Treasury STRIP. One effect of the current practice is to greatly understate the pension debt burden on taxpayers. While estimates of the pension shortfall based on current practice are in the $40 billion neighborhood, a more realistic appraisal based on a risk-free discount rate would fairly value the present underfunding at near $100 billion or more. The reality is that taxpayers’ future earnings are being used to underwrite the pension promises and they deserve an honest and accurate accounting of this burden. Any proper action on addressing the pension shortfall must begin with an honest and accurate report of its size. This, however, is not a prescriptive bill, only a descriptive one; it simply gives us a better and more honest look at pension underfunding. |
||
| View Attachment | ||
Introduced as HB1471