Memo to mayor
Dear Mayor,
We have received your request on the inquiry into how your district gained the large pension liability. I would like to present to you the possible reasons for the scenario, as well as, the possible solution for the situation prevailing.
Unpaid liabilities may result when the city fails to refund the commitments they have made to their retirees. These unpaid liabilities may lead to large pension liabilities. Unfunded liabilities may also arise when the promises that are made to spend money in the future are in excess of the funds available. The investment losses and fiscal challenges, for instance, response costs to weather costs and the fact that retirees are living longer than before can also lead to increased liabilities.
Possible Suggestions
Transitioning workers' benefits to a defined pension plan serve as one of the solutions as it empowers the government workers. This is by reducing the unfunded pension debt. Also, the defined pension contribution plan acts as a pillar in the reform process. This helps to protect the benefits the government workers have earned. Similarly, enacting a system change and creating a climate for long term solvency in the city’s pensions serves as a remedy to the situation. This will require changing the structure of the system while providing a minimum amount of time, of one time immediate funding, to stave off bankruptcy in the employee fund. Also, collective bargaining reforms implementation in the city will serve as a remedial strategy. This is based on the fact that most of the government employees’ salaries and benefits, in particular pensions, are financially unsustainable. The state and the local government should offer defined contribution retirement plans that both protect the taxpayer and public employee retirement security. Strategies such as employee’s benefit reduction, member contributions increment and the adoption of the hybrid pension plans in order to shift some financial risk from the public and onto the individuals should also be used.
Works Cited
Reese, Lowell. State budget solutions. 08 april 2013. 12 May 2013
Schassler, Kathleen. West Hartford officials seek long term solutions to unfunded pension, health care liabilities. 28 March 2013. 12 May 2013
