Pension Contributions at Risk due to COVID-19
As we try to bestow good tidings and wishes onto 2021, we must also weather the aftershocks of 2020 which include a very prevalent global pandemic. According to an article by Pew Trusts, many states are facing budgetary shortfalls due to a loss in revenues coupled with the increasing demand for public health and other services due to COVID-19. In response, some states and municipalities have reduced or delayed their pension contributions while others are considering doing the same.
While it may provide some budgetary relief to reduce or delay pension and/or OPEB trust contributions, it is important to consider the following:
- How will this affect your plan’s future sustainability?
- What happens if investment returns are lower than expected?
- What if your liabilities increase more than expected?
- What happens if you have unexpected budgetary pressures in the future?
- Could there be unintended consequences such as increased borrowing costs?
According to the Pew Trusts article, states who had performed pension stress tests, which simulate the impact of various economic scenarios, were better prepared to endure the stresses that resulted from the pandemic. We recommend talking with an actuary to review your plans and provide an analysis for possible implications that may come from adjusting your current OPEB and/or pension trust contributions.*
To see recent trends on OPEB plans, check out our latest OPEB Trend Report.
If you’d like to speak to one of our consultants today regarding your pension and/or OPEB contribution plans, we’d be more than happy to help.
*Many states have policies regarding trust payments. Before you make any changes, make sure to check with your state’s regulations.