18
Factors Involved in Pension Legislation
for Public Employees
(Continued from page 11)
sary to pay pensions to persons who
have already retired and (b) the re
serve necessary for that part of the
pension already earned, but which will
not become payable until the contribu
tor retires. Of these, the reserve for
pensions for those who have already re
tired is of the greatest significance;
since only death can ordinarily termin
ate the moral, if not legal, obligation
to pay such pensions. The reserve for
pensions to those who have not yet re
tired is also of substantial significance,
but this obligation may later be re
duced substantially by serparations from
the public service, whether due to death,
discharge or resignation.
The A llocation R eserve Funds Plan
Most of the funds operating on the
allocation reserve plan have a favorable
financial position. This may be attribu
ted to several factors, but the most im
portant appears to be the obtaining in
advance of actuarial cost estimates and
the basing of contributions and bene
fits in accordance therewith. That other
factors may also be responsible has
been indicated by the New Jersey Pen
sion Survey Commission with particu
lar reference to the retirement plans of
that state:
sion retirement benefits, at present and
future dates, and to fix contributions
which, together with compound inter
est, will meet those demands. A reserve
fund is established, with individual ac
counts, into which the employee and
governing unit both pay regular contri
butions. The amount of the reserve is
based upon the size of the accuring
benefits, and contributions are related
to the eventual pension burden rather
than to the pension demands in any
given year.
The d'esirability of allocation reserve
plans is generally conceded. The great
advantage of the allocation reserve plan
is that the maintenance of adequate
reserves gives every reasonable assur
ance that promised benefits will be
paid in full and that necessary contri
butions are being made as retirement
benefits are being earned.
The criticisms that are occasionally
made of allocation reserve plans fall into
two categories. In the first place, the
accumulation of full reserves is said
to be unnecessary for financial sound
ness in a large public retirement system
and undesirable because of various fac
tors, including the possibility of bad
investments and consequent capital loss.
As
a result of this objection there is a
The findings show that the funds operat
trend away from the very conservative
ing in accordance with sound actuarial prin
ciples are the most conservative, due no doubt
policy of creating full reserves, still ad
to the fact that these funds bring to the
hered to in most of the Illinois alloca
attention of the public the cost of the bene
tion reserve plan. The Chicago park
fits because they require annual appropria
employee’ fund now operates on a mod
tions determined by the cost. The laws have
ified reserve basis, in which full re-
evidently been held to more reasonable pen
sion benefits when the cost is known and * serves are carried for all pensioners and
currently covered than when the cost is un
partial reserves are carried by the gov
known and is left for a future generation to
erning body for active employees in ad
meet.
The allocation reserve plans operate dition to the employee’s accumulated
under a procedure involving the use of contributions. A modified reserve plan
approved actuarial methods to deter is also provided for in the case of the
mine the extent of demands for pen state teachers’ retirement fund. Here,