32 JULY / AUGUST 2017 CERTIFIED PUBLIC ACCOUNTANTS New Albany 812.945.2311 | monroeshine.com | Louisville 502.423.0311 VISION FOR TOMORROW EST 1925 KNOWLEDGE FOR TODAY AUDIT & ASSURANCE BSA & ACH COMPLIANCE CONSULTING SERVICES IT RISK MANAGEMENT LOAN REVIEW MERGER & ACQUISITION OUTSOURCED INTERNAL AUDIT SEC & SOX COMPLIANCE dŚƌŽƵŐŚŽƵƚ ƚŚĞ ĚĞĐĂĚĞƐ ŽƵƌ ĐŽŵŵŝƚŵĞŶƚ ƚŽ ƚŚĞ ĮŶĂŶĐŝĂů ŝŶƐƟƚƵƟŽŶƐ ŝŶĚƵƐƚƌLJ ĂŶĚ technical knowledge, combined with outstanding responsiveness and service, has helped our clients manage complex issues and regulatory requirements. Coping With High NPLs Underfunded pension plans are looking for new ways to manage rising liabilities. Some have reduced cost of living adjustments and/or the dollar value of benefits, and some have increased the retirement age or required higher employee contributions. Most states legally protect pension benefits, making it nearly impossible to cut benefits for current employees/ retirees, but all states allow benefit reductions for new hires. Researchers from the Center for Retirement Research at Boston College conducted a study revealing the changes plans have been making for current and new employees, as shown in Exhibits 3 and 4. About 74 percent of state plans and 57 percent of large local plans cut benefits and/ or raised employee contributions, but only 25 percent of those that made cuts actually made cuts for current employees. Pension liability redistribution is another option, but implementation might be difficult if significant hardship for municipalities would result. Transferring liabilities could be detrimental to struggling cities that would need to raise additional revenue and could place further pressure on taxpayers. Connecticut’s proposal includes provisions to reduce this adversity where necessary. For example, some cities and towns might receive education grants partially offsetting the cost of the shifted liabilities, and distressed cities and towns might have their portion of the transferred liability eliminated or subsidized. Finally, moving toward a definedcontribution model rather than definedbenefit would significantly decrease the affliction on employers and taxpayers. Defined-contribution plans allow employees to manage their own investment risks, and the amount received during retirement depends on their own contributions and investment returns. Changing plan types is a long-term solution, since most states cannot change plans for current employees. Investors should analyze local pension liabilities and consider any reform that may occur in the future. Although some states may have poor funding levels, many municipalities have their pension liabilities under control and may be able to assume more liabilities if states start to redistribute their pension liabilities to local municipalities. HB * Governmental Accounting Standards Board EXHIBIT 3 EXHIBIT 4
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