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Treasurer’s office says pension reforms and one-time payments have pushed funded ratios up; OPEB pre-funding shows progress
Summary
The Joint Public Pension Oversight committee heard staff updates showing modest funded-ratio gains for state and teacher systems after Act 114 reforms and one-time federal payments; staff cautioned that health‑care cost trends and actuarial assumptions continue to drive uncertainty.
The Joint Public Pension Oversight committee received an update from state pension staff on current valuations, contributors to past underfunding and the outlook for both pension systems and retiree health benefits (OPEB).
Tim Duggan, introduced by the treasurer as the presentation lead, said the state has seen steady improvements since the low point in 2020. Duggan told the committee that the state-side valuation rose “from $1.43 to $1.51” and the teacher system from “$2.13 to $2.27,” and noted the continuation of a supplemental annual payment now fixed at $15,000,000 until systems reach 90% funded.
The presentation credited several policy steps for the turnaround: the 2015 creation of a separate Retired Teachers Health Medical Benefits Fund that moved retiree health payments out of pension assets, reductions in the previously back-loaded yearly amortization ramps, and the 2022 pension reform statute (Act 114) that provided a one-time payment and set an annual contribution schedule. Duggan said the statute’s one-time payment was $200,000,000 “split between VCIRS and VCSTRS” and that annual supplemental payments have increased in recent years to reduce budgetary pressure.
Duggan described actuarial drivers that raised reported liabilities in earlier years: lower assumed rates of return, adoption of new mortality tables in 2017, and deferred losses from weak markets in 2022 that are mostly realized now. He also described the state’s procedure of smoothing investment returns over five years for actuarial valuation purposes and the role of the state investment commission in reaffirming a 7% assumed rate of return this fall.
On OPEB (other post‑employment benefits), Duggan said the pre‑funding plan is producing measurable gains. He told the committee the Joint Fiscal Office had estimated prefunding would reduce liabilities by about $1,700,000,000 and gave draft ADEC projections that would increase annual retiree health contributions (projected ADEC about $94,000,000 for the state and $80,000,000 for the teachers). Duggan emphasized the OPEB valuations presented to the committee are draft and will be finalized for the boards.
Members asked whether market outperformance would accelerate reaching statutory targets. Duggan cautioned that actuarial smoothing and remaining deferred losses limit how fast gains show in the funded ratio, and that as the statutory target year approaches the committee may need to consider amortization adjustments because there is less time to spread future gains or losses.
Former Treasurer Beth Pearson, called as a witness, thanked the committee and credited the coalition of legislators, staff and unions for moving the prefunding steps forward, noting that the combination of federal funds and the statutory package made the pre‑funding approach viable.
The meeting record in the transcript shows no formal votes. Staff said they will present finalized valuations to the respective boards and continue monitoring assumed rates, health‑care trend assumptions and contribution schedules.
Next steps: draft OPEB valuations will go to boards for formal review; staff will continue annual valuation work, monitor healthcare cost trends that drive OPEB assumptions, and report back as boards act on final numbers.
