A valuation report on the territory’s public pensions calls for government to spend more than $368 million over the next 20 years – more than $18.4 million annually – to address the pensions’ combined funding shortfall of $197.2 million.
However, government has not been meeting that target in recent years. While this will not immediately pose any difficulties for government to meet its monthly pension obligations, in the future it may mean that government must spend even more than $18.4 million annually to address the shortfall.
The information about the pensions plans was made public last month when Finance Minister Roy McTaggart presented the valuation report, which is released every three years. He explained that the funds have a combined $197.2 million deficiency because civil servants accrued benefits before the funds were established. The public service pension plan was not established until 1990, and so the benefits promised by government to civil servants before that time were unfunded. This deficiency is referred to as a ‘past service liability’.
McTaggart said last month that the deficiency is “not a cause for alarm” because government is spending extra money to address the unfunded liabilities.
“The existence of an actuarial deficiency is not a reason for immediate concern because the government does have some time to eliminate the deficiency and is taking actions to do so,” he said last month. “In the meantime, payments of monthly pensions continue to be paid from the funds without any difficulties.”
But government is spending less than what’s recommended in the report, which was drafted by the consulting firm Mercer.
The valuation report, which covered a three-year period ending Jan. 1, 2017, recommends that government spend about $368 million over the next 20 years to eliminate the shortfall in the public pensions funds.
According to budget figures, government only spent $10 million in 2018 to fund the past service liabilities – about $8.4 million less than the report calls for. This year, government budgeted $11.1 million to fund past service liabilities, and last month legislators approved an additional $4 million in supplemental spending that will also fund past service liabilities.
Financial Secretary Kenneth Jefferson told the Compass that government is “substantially there” in meeting the $18.4 million annual target this year. If government is running a larger-than-expected surplus towards the end of the year, legislators may choose to allocate even more funds to cover the past service liabilities, Jefferson said.
The financial secretary added that the next valuation report will be done in 2020. That report will revise the estimates for how much government must spend to shore up the unfunded liabilities, and lawmakers will respond to the report accordingly, he said.
The last time government released a three-year valuation report on the public pensions funds was in June 2016. In that report, consultants called for government to spend about $320 million over 20 years – about $16 million annually – to address the past service liability.
McTaggart was off island on Wednesday and unavailable for comment about why government is spending less on addressing past services liabilities than has been recommended in the valuation report.