The Cayman Islands government is not paying even half of what is required to make up past liabilities for current and former civil servants who are members of the public service pension plan’s defined benefit retirement scheme, figures presented to the Legislative Assembly last week revealed.
The issue involves complex analyses of the government’s public retirement system, but it essentially boils down to this: government isn’t putting nearly enough money into the accounts for workers who will receive a monthly pension at retirement to support that fund as it is currently structured. If the under-funding continues, it could, at some point, leave the public sector pension system without enough assets to meet its obligation to retirees.
The problem is not immediate. Cayman’s pension liability figures are stated for a rolling, 20-year period based on estimates of who will retire when, and how long they are likely to live. It is also not necessarily new; unfunded liabilities in the defined benefit section of civil servant retirement plans have existed for more than a decade in Cayman.
However, financial records indicate that government retirement plans for parliamentarians’ pensions and judicial pensions are being fully funded to meet that rolling 20-year liability. In fact, the government is currently funding contributions to the lawmakers’ retirement plan at 101 per cent of their salaries – with the government contributing 95 per cent of that amount.
Meanwhile, judges’ retirement plans were fully funded at 41 per cent of their salaries for those on the defined benefit retirement plan – with members contributing 10 per cent of salaries and government contributing 31 per cent. Judges on the defined contribution plan – meaning they receive a lump sum payment upon retirement – were contributing 10 per cent from salaries with a 20 per cent additional contribution from government.
According to an actuarial evaluation of the civil servants’ defined benefit plan completed for 1 January, 2008, analysts noted that government and its workers should be paying almost 45 per cent of salaries into the fund to make up the projected liabilities over a 20-year period.
It is currently paying 12 per cent of salaries into that fund; 6 per cent from the workers and 6 per cent from the government.
The result has been a major unfunded liability in the defined benefit portion of the civil servants’ retirement plan. That has been made up in past years partly by multimillion-dollar payments – averaging about $12 million to $14 million per year – for past service pension liabilities.
However, starting in the 2009/10 budget year, and continuing in the current 2010/11 fiscal year, the Cayman Islands government has cut payments into that past service pension allotment to less than $2 million per year. Premier McKeeva Bush told lawmakers Thursday that it was “very likely” the next evaluation of the defined benefit pension plan would show that public sector pension liabilities had increased even further because of “poorer-than-expected” investment performance and the government’s decision, thus far, to stick to the 20-year rolling period for measuring pension liabilities.
Mr. Bush suggested that if the period were extended to 30 years – as has been done with many public sector pension systems – Cayman’s public sector pension liabilities might actually decrease.