Federal Legislation – PORAC Engages on PEPTA

Darryl Nirenberg
Partner
Eva Rigamonti
Associate
Lesley Brock
Legislative Assistant
Steptoe & Johnson LLP

In June, Representative Devin Nunes (R-22nd-San Joaquin Valley) reintroduced the Public Employee Pension Transparency Act (PEPTA), H.R. 6290. As the legislation could negatively impact the California Public Employees’ Retirement System (CalPERS), PORAC President Brian Marvel sent a letter to Nunes in August to make him aware of the organization’s concerns.

PEPTA would require state and local governments to report underfunded pension plans (known as unfunded liabilities) to the federal government, as well as establishing new reporting requirements. It would also change how unfunded liabilities are to be calculated.

The rate used to calculate these pension plans would be based on U.S. Treasury bonds, instead of the Government Accountability Standards Board (GASB) standards currently used. Changing the rate of calculation would artificially inflate a state’s unfunded liabilities to higher levels than what the plans actually face, resulting in an inaccurate representation of data. A state’s failure to comply with this inaccurate reporting would cause it to lose its ability to issue tax-free bonds. PEPTA also would prohibit the federal government from issuing bailouts in the event of a shortfall.

Nunes argues that enforcing these reporting requirements and changes in how the rates are calculated will allow taxpayers to see how much money they are paying toward state and local government employees, providing more transparency and reducing abuses in the system.

However, as President Marvel pointed out to Nunes, state and local government-sponsored pension systems are already subject to significant regulation and mandated transparency. He noted how (1) the systems are created by state statutes and local ordinances with robust open records and sunshine provisions, and (2) those who manage the plans are held to high fiduciary standards and are overseen by elected leaders and independent boards of trustees. The safeguards currently in place ensure that participants in these plans are adequately protected from fund misuse.

State and local government retirement systems are required to publish financial data on the plans they manage. This information is publicly available and searchable (at no cost to taxpayers) through databases such as the Annual Survey of Public Pensions. PEPTA’s reporting requirement merely duplicates what is already mandated at the state and local level — compelling plans to expend additional taxpayer funds to report duplicative information.

PEPTA will require plans to use accounting standards that the GASB, a nonpartisan independent body, has already determined to be inappropriate for government entities. In 2012, after a multi-year review and revision of public pension standards, the GASB rejected the assumptions and calculations proposed by the two versions of PEPTA previously introduced. The current version of the bill requires the same, rejected calculation.

In his letter to Nunes, President Marvel highlighted other areas for pension reform, including preventing governments from taking pension-funded holidays, irrespective of a state or local government’s ability to fund them.

In light of the tight congressional schedule, prospects for passage of PEPTA this year are questionable. However, PORAC will continue to oppose the legislation as well as other efforts with the potential to negatively impact CalPERS, and will keep educating members of Congress on issues related to pensions for public safety officers.