Researchers from the Pew Charitable Trust Foundation called West Virginia’s public employee pension funds a “tremendous turnaround story,” going from the nation’s worst-funded pensions as recently as 2000 to being the 20th best-funded plans in 2015.
“We have to point to West Virginia as sort of the poster child, frankly, of states that have made the most dramatic turnarounds,” Katie Selenski, Pew’s state policy director, told a joint meeting of West Virginia House and Senate Finance and Pensions committees on Monday.
“You committed to a plan in the ’90s and have really stuck to it,” she said.
The researchers cited several milestones along the way:
n In 1994, facing a $3.3 billion unfunded liability in the Teachers Retirement System, legislators created a 40-year plan to pay down the deficit.
n In 1997, voters approved a constitutional amendment allowing pension fund assets to be invested in stocks and other investments. Previously, the assets could only be in fixed-interest bonds or cash, which made it impossible to reach the 7.5 percent annual return on investments needed to keep the funds solvent.
Concurrently, the Legislature created the Investment Management Board, to independently and professionally manage the state’s pension portfolios.
n In 2007, the Legislature committed $807 million in tobacco settlement funds obtained by then-Attorney General Darrell McGraw to the TRS, to further shore up the pension plan.
n In 2015, the Legislature created a new tier of the TRS and Public Employees Retirement System benefits for all new hires after that July 1, increasing employee contributions, extending the retirement age and reducing the calculation of pension benefits.
The Pew study noted that, since 2009, 48 other states have restructured their pension plans, with 37 states increasing employee contributions and 30 states reducing benefits.
“I thought that was one of the most significant things we accomplished in the Legislature that year,” Senate Finance Chairman Mike Hall, R-Putnam, said of the pension change. “I know some looked on that negatively.”
For state taxpayers, the downside of paying down the pension liabilities is that, each year, the Legislature has to put nearly $490 million — or more than 10 percent of the general revenue budget — into the pension plans.
House Finance Chairman Eric Nelson, R-Kanawha, who has floated the idea of refinancing the pension liabilities to lower annual payments, raised that option with the Pew researchers Monday.
“You can reduce contributions in the short-term. However, this is a matter of when you pay, not if you pay,” Pew senior officer David Draine responded, adding, “It’s the sticking with the plan that has gotten West Virginia to the progress it has made.”
Extending the remaining 17 years of payments to a 30-year payment plan would reduce the annual payment by $70 million to $90 million a year, something Nelson said he believes must be considered as one option to close the $500 million shortfall in the 2017-18 state budget.
“We’ve got to look at every expense item, and this is one of them,” Nelson said after the Pew presentation.
However, Nelson said he would have to be certain that extending the payment plan would not affect the state’s bond rating — particularly in light of a proposal by Gov. Jim Justice to sell $1.4 billion or more in highways and transportation construction bonds.
“You’ve got to pull all of this together,” Nelson said, expressing confidence that the repayment proposal is viable.
“At the end of the day,” he said, “it would be like refinancing a mortgage.”
Reach Phil Kabler at email@example.com, 304-348-1220 or follow @PhilKabler at Twitter.