Pub. 5 2017 Issue 2

Issue 2. 2017 7 have been making for current and new employees, as shown in Exhibits 3 and 4. About 74% of state plans and 57% of large local plans cut benefits and/or raised employee contributions, but only 25% of those that made cuts actually made cuts for current employees. Exhibit 3 – Plans Making Benefit Changes to Current Employees 2009-2014 Exhibit 4 – Plans Making Benefit Changes to New Employees 2009-2014 Source: Center for State and Local Government Excellence (2016), State and Local Pension Reform Since the Financial Crisis Pension liability redistribution is anoth- er option, but implementation might be difficult if significant hardship for mu- nicipalities would result. Transferring liabilities could be detrimental to strug- gling cities that would need to raise additional revenue and 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 offset- ting the cost of the shifted liabilities, and distressed cities and towns might have their portion of the transferred liability eliminated or subsidized. Lastly, moving toward a defined-contri- bution model rather than defined-benefit would significantly decrease the afflic- tion on employers and taxpayers. De- fined-contribution plans allow employees to manage their own investment risk, 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 can’t change plans for current employees. Investors should always 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. n Dana Sparkman, CFA, is a municipal analyst in The Baker Group’s Financial Strategies Group. She manages a munici- pal credit database that covers more than 100,000 municipal bonds, providing clients with specific credit metrics essential in assessing municipal credit. Dana earned a bachelor’s degree in finance from the University of Central Oklahoma as well as the Chartered Financial Analyst designation. Contact: 405-415-7223, dana@gobaker.com Investors should always analyze local pension liabilities and consider any reform that may occur in the future. THE BEST NUMBER TO HELP YOU DRIVE YOUR SMALL BUSINESS CLIENTS TO NEW HEIGHTS. For operating capital needs, talk to us about SBA Community Advantage (7a) Loans. 801.474.3232 | mwsbf.com Partner with us on SBA 504 Loans • Purchase land and equipment • Buy, build or remodel a building • Lower monthly payments • 10- to 20-year fixed rates • As little as 10% down Utah’s #1 Small Business Lender