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CERS has been paying the full ARC. Why are they underfunded?

Yes, CERS has been paying the full ARC, but the ARC has been severely understated and would continue to be severely understated if pension reform does not occur. This is a result of unrealistically optimistic actuarial assumptions used in the annual actuarial calculations.

Using the overly optimistic and erroneous 2016 assumptions, the funding levels for both plans are below 60% -- 59.0% for CERS-NH and 54.6% for Teachers.

Using the same investment rates of return that corporate plans are required to use – the Corporate Bond Index rate – the CERS-NH unfunded liability goes from $5 billion to $9 billion.

Another factor that adversely affects CERS funding is the practice of paying down existing unfunded liabilities using the "level percentage of payroll" methodology.  Under the level percentage of payroll approach, payments to amortize unfunded liabilities are scheduled to increase over time – effectively back-loading the pay down of pension debts.  This is based on the theory that future payrolls will be higher with greater capacity to help address these liabilities.  But increases in payroll have not matched the 4% assumed rate of growth.  In practice, this has resulted in actuarially recommended employer contributions that are not sufficient to offset assumed interest on the unfunded liability in the near-to-intermediate term, even if plan meets all of the other actuarial assumptions.