Oral arguments in the public pension gain sharing and automatic cost-of-living adjustment (COLA) cases will be heard October 24 of this year. (Mark your calendars!)

In the meantime, a few recent publications from the Center for Retirement Research (CRR) may be of interest. First, last month, CRR released a report on the funded status of state and local pensions for the years 2012-2016, including estimates of funded status based on the Governmental Accounting Standards Board’s (GASB) new standards, which are effective in 2014.

For 2012 (using the old standards) the funded ratio for state and local plans nationally was 73 percent. (Every Washington plan included in the sample has a better funded ratio than that.) Using a riskless rate, the report estimates that funded ratio in 2012 was only 50 percent. Using the new GASB standards (which use a combined rate of return), the 2012 funded ratio was 60 percent. From 2013-2016, the report estimates that funded ratios will improve, except in a pessimistic scenario. The paper notes that measuring public pension funded status has always been tricky, and (in a Yogi Berra-esque aside) says, “Unfortunately, the future will be more confusing than the past.”

The second CRR report is about a shared risk pension plan in Canada. In the U.S.,

The response so far among state and local plan sponsors has been to suspend or eliminate cost-of-living adjustments, cut back sharply on benefits for new employees, and raise employee contributions. Some states have also introduced a defined contribution component. While the cutbacks have sharply reduced future costs, they have been ad hoc and unexpected.

The New Brunswick, Canada plan “splits plan benefits into highly secure ‘base’ benefits and moderately secure ‘ancillary’ benefits” and has “protocols that require pre-determined actions to change future benefits, contributions, and asset allocations in response to changes in the plan’s financial condition.”

Establishing such rules is a thorny and difficult task, but is likely to produce a much more sensible outcome than lurching toward generous benefit expansions when times are good and dramatic benefit reductions when times are bad.

This lurching is especially problematic when benefits cannot legally be reduced. Hence the importance of the gain sharing and COLA cases for future pension policymaking.