Study: Seattle public pension plans doing well as federal stimulus expires
(The Center Square) – Credit ratings agency S&P Global Ratings says Seattle is doing well in terms of the funded ratios of its two largest public pension plans: the Law Enforcement Officers’ and Fire Fighters’ Retirement System Plan 2 and the Seattle City Employees’ Retirement System.
That’s according to a new report, “Pensions Pressure Lingers For Largest U.S. Cities Despite Federal Stimulus,” which details S&P Global Ratings’ annual survey of the 20 largest American cities’ pension funding, including the funded ratios for 35 plans across those cities.
The report is available to subscribers of RatingsDirect at www.capitaliq.com.
Other cities that are part of the report include New York, Los Angeles, Chicago, Houston, Phoenix, Philadelphia, San Antonio, San Diego, Dallas, San Jose, Austin, Jacksonville, Fort Worth, Columbus, Indianapolis, Charlotte, San Francisco, Denver, and Washington, D.C.
“We don’t see Seattle’s pension burden as the main budget-balancing challenge in the 2020s,” explained Chris Morgan, S&P Global Ratings’ U.S. public finance director and primary analyst for Seattle told The Center Square in an email. Things like the pace of economic growth affecting tax revenues and the cost of salaries and benefits are considered more impactful.
“In our recent survey of the 20 largest US. cities, Seattle’s two largest pension plans’ funded ratios – the actuarial match between long-term assets and long-term costs – came in on par or well above the median,” Morgan said. “By that measure, only Denver and Washington, D.C. look better.”
According to the report, the funded ratio of Seattle’s police officers’ and fire fighters’ plan comes in at 71%, just below the median rate of 71.5%, while the city employees’ plan has a funded ratio of 116%.
While the funded ratios of the public pension plans of the 20 U.S. cities looked at remained stable over the past fiscal year, the expiration of COVID-19-related federal funding – last year’s CARES Act and this year’s American Rescue Plan Act (ARPA) – means local governments will face difficult choices.
Federal funds can’t be used to directly support cities’ pension systems. However, both CARES and ARPA funds provided some budgetary flexibility for city governments to allocate general funds toward maintaining the funding of pension systems.
The Emerald City is no exception the expected hard choices to come.
“Pension costs are likely to increase in dollar terms in the coming years,” Morgan warned. “Under the city’s formal assumptions associated with the main plan associated with non-public safety employees, it will take about two decades for assets to get in alignment with liabilities. The pension plans associated with public safety employees have assets that are larger than their liabilities, so it’s easy for Seattle to tread water on those.”
The good news doesn’t change the fact that the city’s public pension systems will likely face challenges in the future.
“The main variable affecting the city’s management of its pension liabilities, in our view, is its ability and willingness to adhere, via annual budgeting decisions over time, to an actuarily-based pension contribution approach that will bring long-term assets into alignment with long-term liabilities,” Morgan said. “Based on our experience nationwide, changing economic and revenue conditions can make this easier or harder.”
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