Pension Funding- How Are We Doing in CA and Around the Country

Transcription:

Keely (00:05):

Okay, so it looks like most people are getting settled, so I'm just going to go ahead and start. So for decades, common wisdom held that people who work in the public sector might not earn salaries on par with private sector peers, but they could retire after 30 years with a bulletproof pension that would ensure security in their retirement years. But during the late 1990s, stock market value soared creating a situation where many pension funds were overfunded, believing the status would last forever. State and local politicians offered richer retiree medical and pension benefits to offset years in which raises were slim or non-existent. Jump ahead to the mid aughts and many pension funds moved from being overfunded to vastly underfunded. The average 8% assumed rate of return on pension assets proved to be too high to meet the new reality. And then in 2021, when pension funds appeared to be realizing the fruits of their efforts following the 2008 crash to stabilize pensions by lowering assumed return rates, and by enacting pension reforms, including the creation of new employee second tiers with less rich benefits, the landscape changed again.

(01:14)

So where are we today in 2023 where the optimism of 2021 re pensions has not been fully realized? Have the choppiness of the markets amid treasury interest rate increases in inflation, resulted in losses to the gains pension funds made and working toward being fully funded. With us here to today to discuss these issues are three people who spend each day wrestling with these issues. On the end is Kurt Snyder. He's a supervising actuary at CalPERS by far the largest pension fund in the nation. Kurt Snyder has 25 years of experience as a pension actuary. He joined the CalPERS Actuarial Office in 2016 and currently supervises a team of actuaries that provides actuarial services to the state of California school employees and numerous contracting public agencies. And then in the middle is Zachary Christensen. He's a director of municipal finance at the Reason Foundation and Managing Director of the Reason Foundation's Pension Integrity Project.

(02:15)

The Integrity Project aims to promote solvent sustainable retirement systems that provide retirement security for government workers while reducing long-term costs for taxpayers and employees. And then right next to me is Oliver Giesecke. He's a research fellow at the Hoover Institution at Stanford University. His recent academic work focuses on the fiscal consequences of public pensions in the United States. He's also the author of the Stanford Municipal Finance Dashboard, which displays fiscal fundamentals and daily credit spreads for a large sample of state and local governments in the municipal bond market. So Kurt, what do you consider the present challenges for CalPERS? Can you tell us what CalPERS has done to try to protect its assets and ensure that the employees it provides benefits for are positioned to have a retirement free of financial worries?

Kurt Snyder (03:09):

Sure. So that is the challenge, right? Our main objective is to make sure that the money's available when the benefits are due. As far as the investments, I won't talk too much about that. That's not my area of expertise. They're constantly working to develop asset mixes that the board can adopt. They go through this four year cycle, but like I said, I won't talk too much about that. Our challenge, so what I do is measure the liabilities. I turn around and tell the employers, this is the liabilities as of this date. Here's your assets. Those are in the financial statements, and if they're different, how are you going to pay for it? We set up kind of a default payment plan, the amortization schedule, but then we are working with employers to, based on their own financial resources, try and figure out how to rearrange those amortization payments in a way that's more beneficial to them.

Keely (04:13):

So Kurt, what's the average lifespan for the California employees that are in the state pension fund and has your thinking around that longevity? Has it changed since Covid or just like some corrections was? I mean, there was talk about people living to be 120 and how does that affect what you do and the data you work with?

Kurt Snyder (04:40):

Yeah, so we study the mortality. Now, CalPERS is kind of unique being the largest pension plan. We have the most data on our own retirees to sort of observe the mortality experience and measure it. And we know that our retirees have better expected, longer expected lifetimes than the average American. So that's all taken into account when we measure our liabilities. And that is also done on a four year cycle where we're kind of UD it every four years. We look at standardized tables and we look at our experience and adjust 'em accordingly. So the big question over the last 10 years or so has been, well, what do you assume for future mortality improvement? Because everybody knows that over the decades, mortality keeps improving. And then if we do a new study every four years and say, oh, mortality improved, your liabilities are higher than we thought.

(05:42)

Why is that such a surprise every four years? Shouldn't there be something built in to take into account those mortality improvements? And nowadays there is. That's something that we don't quite have the ability to measure quite so exactly, because it depends on a lot of assumptions about future health trends and all these other things that we rely again on national studies by the Society of Actuaries to look at mortality improvement. Now, what happened with Covid was that suddenly things kind of reversed and the life expectancies went down a little bit. And the question is, is that a blip from covid and they'll go back, start going up again, or is this the start of a trend or kind of the first sign of a trend where those future improvements are slowing down? Well, we don't really know yet. We're watching closely. We'll continue it to study it, and we'll just see how it plays out. But that's why number one, we look at our mortality and adopt new assumptions every four years. So we can't get too far out of whack. And even from year to year, we're doing a valuation every year. So in a single year, if people suddenly start living longer, that'll be reflected in the next valuation. The retirees are more of them are alive than expected. It'll always be reflected. So there's not any big jump that happens when mortality changes suddenly.

Keely (07:13):

So let's talk about the California Public Employees Pension Reform Act on Pepa, which took effect in January, 2013 and changes the way CalPERS retirement and health benefits are applied and places compensation limits on members. So nearly a decade out, we'll start with Kurt and then Zachary, if you would like to chime in and Oliver on how you think that's working out for California.

Kurt Snyder (07:41):

Sure. So it was a big change because it affected for CalPERS, it affected state employees, school employees, and all these public agencies, which traditionally have been able to pick their benefit formula from a select from series of options. And now suddenly they were told, no, you have to change to this. And they all changed. It wasn't as dramatic of a change as we see in some other states. It's still a defined benefit plan. It's still a final average pay plan. They got rid of the idea that you could have a final average pay based on only your final 12 months pepper made it. So it has to at least be, or it has to be 36 months. Still not a very long period, but at least it's mandatory for everyone. And the benefit formula itself is less generous than some of the ones that were in existence prior, but it is still pretty generous.

(08:44)

It's still a pretty good pension. The biggest reform has really been that salary cap on the benefit formula. So for people who are in social security, it's right now the cap on salary is, I don't know, 140, 150,000. And before it was much higher. So you could have somebody who works a full career with a city, gets promoted to city manager at the end of his career and gets a three or $400,000 salary, and all 30 years of his pension formula is on that $350,000 salary. And that doesn't happen anymore. It gets cut off at that limit no matter how high your salary gets. So it really limits the amount of, they would call it spiking that you can do. It's the most effective thing they've done to kind of put that into the really egregious spiking.

Keely (09:43):

Okay. So Zach, what's your take? Do you think that, do you think it worked? Do you think they could have gone farther if it weren't for the California rural?

Zachary Christensen (09:54):

Okay. Yeah, great. There's a lot packed into that question. Just to give everyone a little background on what I do, the pension integrity project, we work with lawmakers all over the country to help come up with, we basically identify potential reforms that could be done and what the impacts of those reforms will be. Of course, we watched closely, we weren't around when PEPA came about, but we've obviously looked back and compared our notes compared what we saw here, California to what we've seen in other states. Generally, we give a ton of credit to California lawmakers and Jerry Brown, who really led up a lot of the push to make these reforms. These are pretty significant cost saving reforms that were done. And to California's credit, they were done back in 2013, 2012, when a lot of states were still kind of putting their hands over their ears and hoping that it would all pass by hoping all the pension funding problems would just that some miracle in the market would save their butts.

(11:00)

But California was very proactive in getting that done, and due to the fact that they did it so early compared to other states, it put them in a much better and a stronger position to overcome those pension debts. Now, are they out of the woods? No, in fact, so Keely, you asked, did they go far enough? I mean, you can only go as far as you can with whatever political capital you have at the time. So it's hard to say if they went far enough, we would say that they should still continue to look for opportunities to reform and find cost saving methods, cost saving reforms, risk reducing reforms that'll ensure that they're still on the path. I mean, when it comes down to it, the state is still 245 billion in pension debt. So that's nothing to look past. It's still a major issue that needs to be addressed. So there's more reforms that should be approached and should be considered. That's at least what we would say.

Keely (12:00):

So Oliver.

Oliver Giesecke (12:01):

Yeah, thanks for having me. Just to follow up on what Zach said, I think California was really one of the earliest big adopters of reforms, and I think some of the measures that we have seen really were the precursor and maybe also established best practices of what we have seen in other states. So for instance, the averaging of the final salaries as well as the salary cap and adjustments to the pension benefit formula more generally. And so yeah, that I think California really has been sort of a role model to which other states and localities are looking to.

Keely (12:46):

So what other states have done reforms that you think maybe they did a good job with it or that is kind of like a model for other states? Could you throw out some examples for us of how it was done in other states?

Oliver Giesecke (13:02):

Oh, sure. Let me actually speak to three localities more specifically. So we worked very closely with, for instance, Fort Worth, Texas, which made it a major pension reform after they're receiving a rating downgrade in 2019. So for instance, they adjusted the retirement age. They also adjusted liability and spouse benefits, which all add up to the total pension cost. Then further, we have seen a major pension reform in Baltimore, Maryland where the mayor decided to go to a hybrid plan and providing an option between the hybrid and the DC plan. And it turns out actually that more than 50% are opting into the DC plan, which is quite surprising given the big opposition to DC plan's mobile. And then maybe the last example is Milwaukee Wisconsin's, which recently saw a major pension reform where they essentially established a soft freeze of their current city retirement plan, and future employees will be enrolled into the Wisconsin's retirement system, which is a very interesting plan because it's one of those plans that has a risk sharing component. That means the benefits are contractually tied to the performance of their pension assets. And so that really introduces this risk sharing between the employee and the employees, and can always serve as a sort of an insurance mechanism if the economy or the asset performance do not turn out as the assumption require.

Keely (14:51):

So both California and Illinois are really kind of prevented from, well, they can't make changes based on the constitution in Illinois, and based on a series of legal presidents in California in other states, do they have similar sorts of laws that are preventing them from reforming? Is adding a second tier the only way to make significant reforms? Could you take that Oliver and then Zach?

Oliver Giesecke (15:27):

I can start with the question. So what you're referring to is these statutory provisions that essentially protect existing or accrued benefits. And so in principle, that prevents obviously from changing the accrued benefits, but that does not prevent from changing the benefits going forward that are going to be earned. And typically what we have seen is establishment of a new tier or something for new employees, and that obviously any sort of fiscal savings from establishing a new tier will be accrued over many, many years. So that's really a timeframe of 10 to 20 years until we see substantial reductions, but also cities operate on a slightly different timescale as a typical corporation or an individual. So maybe that is appropriate.

Keely (16:24):

Okay. Zach, can you talk a little bit about what's happening in Illinois? There's a lot of pushback against the tier that they adopted more than a decade ago from the employees who are now getting lower benefits, there's actually some concern over the safe harbor provision, and I know I'm throwing a lot at you again, so just go ahead and take it all.

Zachary Christensen (16:45):

That's all right. Let's go. Let's go. Yeah. So just for information, for those who don't know about this type of thing, there's a big legal battle going on in a lot of different states about what exactly you're able to reform when it comes to changing benefits to a retirement plan and to a pension plan. You'll hear the term California rule thrown out. So basically there's two levels. Well, there's more than just two, but I'll give you two for today for simplicity's sake. The first level of promises that you'll see promise to public workers and that need to be fulfilled is the basic built into the constitution, into the contracts clause, basically. And this is for every state. Every state has this where if they promise something, so if a pension promise is made to a public worker, they're going to have to fulfill that. There's no way for that promise to be removed or to be minimized or anything like that.

(17:37)

Now the next level, and this is what's called the California rule, so congratulations for your state being named in the pension world. It has its name attached to something, but basically this next level of promise, the California rule says that not only can you not fulfill a promise that's made, but a promise that is given or a benefits that's given to someone when they're hired has to be the same benefit throughout their entire career. So that means halfway through their career, the pension plan or the state can't change the benefit, they can't change the retirement age, they can't change the colas that are given any of that. That makes it very challenging to create reforms. Now, you can still create new tiers. PEPPER was a very admirable, very admirable effort at this, and it actually held up to a lot of legal scrutiny. And that's usually what this all comes down to with the California rule.

(18:35)

Keely, you asked other states that deal with this California rule. Yeah, there's a ton. Actually, it's probably about 10 different states, including Illinois. And some of you may not think of Colorado and Arizona that also have to deal with those same legal requirements in their own state constitution. But it really comes down to being able to make the case that you're not reducing or removing benefits that were promised early on in a career later on. So it really comes down to legal. It's a legal battle, which I'm no expert of legal matters, so it's hard for me to say. But we've seen several cases in different states that have the same legal parameters where they're still able to pass pretty significant reforms. You asked about Illinois, same battle is going on there where reforms that were made, as soon as those reforms are made changing the benefits, the retirement age, any of that, that would, in a lot of cases it's necessary cost saving measures.

(19:30)

Basically, cities and the state of Illinois just are not able to pay. The taxpayers aren't able to withstand the burden that that's creating as cost continue to grow. Basically, these reforms that were passed are immediately facing legal challenges. And so it really gets down to the court and court decisions that are made with all that. But our general approach is be aware of those obstacles and of those hurdles do your best to adhere to those. But you'll also find that if you're able to pass a reform that's popular not only with taxpayers and lawmakers, but it's something that maybe unions can even get behind, because a lot of times they're starting to realize that, oh, this is unsustainable. If you can get everyone on board, you're going to find that those legal challenges kind of melt away.

Keely (20:24):

So Kurt, what do you think about the arguments around defined contribution like CalPERS versus a 401k program? There are some who think that moving away from what a more traditional pension program for state and city employees departs from the promise made to them when they made a commitment to work in the public sector, agree or disagree.

Kurt Snyder (20:44):

That certainly is the perception that people go to work in the public sector, partly because they know they're going to earn a secure pension. That is true, and I think it's kind of a false dichotomy or something to say, well, you have DB or dc, you have to pick one. When really there's a spectrum between the two. You can have a modest defined benefit plan and higher paid workers can have a DC plan on top of it that gives them a generous, secure retirement where they bear some of that investment risk on that more generous portion of their benefit. So yeah, I think it's just a false choice, so to say that it's one or the other.

Keely (21:36):

Okay. So what is CalPERS assumed rate of return now and what is the ultimate goal and how low can it go do you think? Even as low as 5%.

Kurt Snyder (21:49):

So right now it's 6.8%. So that's based on the current portfolio and the current capital market assumptions or current. The last time we studied it, which was two years ago, things have changed. So the goal, there is a policy that CalPERS has that says the idea is that the pension is plan is too risky, the portfolio is too risky, the employers can't bear the ups and downs. We want to bring the risk down as the plan matures and we accumulate the assets to fund the benefit. And the policy says that in years of good return, when we have an investment gain, we can ratchet down the discount rate by moving into less risky assets, but only so much as can be paid for by this investment gain that just happened, right? So it's, it's intended to be a cost-free way to ratchet down the risk.

(23:00)

And the goal of that policy, as stated in the policy, is to reduce the standard deviation of the portfolio down to 8%. It's kind of an arbitrary setting. So I don't really know where that gets us in terms of a discount rate, but that varies from year to year. Two, as the capital market assumptions change, at the end of the day, they're going to look at the portfolio, they're going to look at the capital markets. They're going to select from various portfolios, pick a discount rate. Our board does not have a goal of does moving the discount rate down to any particular level. They just want the discount rate to be reflective of what we truly expect to earn, because that is what determines the true cost of the plan. and you mentioned 5%. Oh, sorry, I probably just shouldn't let that go. One more thing

(23:57)

Just in terms of the building block approach of coming up with an expected rate of return for portfolio, we start with inflation. Right now, our inflation assumption is 2.3% per year. It used to be much higher. We've gone down to where we think it probably is down as low as it needs to be. We don't, because of the federal open market committee's policy of their 2% target on PCE inflation, they're talking about price inflation. We think we're where we need to be. We don't need to bring that down anymore. On top of that, you're going to earn a risk-free rate of return. On top of that, you're going to have assets invested in some kind of risky diversified portfolio, you're going to earn something. So it's hard to see how we get down to 5%, but the capital market assumptions change over time and we'll see.

Keely (24:49):

Okay. So Zach, what should pension funds be doing to try to assure that cities remain solvent as they try to balance pension costs against the other costs of running a city?

Zachary Christensen (25:00):

Okay, well, great question. What should they be doing to help these cities? So yeah, it should be noted that the burden of these pension costs is, it's very heavy on a lot of local governments. You're starting to see, I mean, basically what they're looking at is the cost, the annual cost of continuing to fulfill these promises that were made to their public workers and their eventual retirees is multiples of what it used to be and what they were told it would be originally. And in a lot of cases, in some of the states, we're looking at costs that are 10 times as much as what they were just 12 years ago. So some exploding costs. I don't think it's that extreme in California cities, but it's very much growing. And not only that, but they're looking at projections where that's very likely going to double over the next 10 years.

(25:48)

So it's something that's very serious. That's going to be a big challenge for a lot of local governments. So what can the state do to help local governments to be able to afford all of that? I mean, the states are dealing a lot with their own unfunded pensions as well, so they're dealing with their own, but a lot of states are finding creative ways to help support local governments. In Michigan, in 2017, they passed what's called a grant program for local governments. In their municipal plan, they were seeing a ton of cities and counties that were severely underfunding their pensions, which normally you would say, well, that's on them, right? They're going to have to find that money somehow. But in a lot of cases, when you're looking at it, cities and counties can declare for bankruptcy, states cannot. So eventually those liabilities, the thinking is those liabilities will fall to the state.

(26:46)

So a lot of state lawmakers, like in Michigan, are finding programs where they can find some of that state money and give it to local plans to help shore up some of those unfunded liabilities. But there are a lot of strings attached. And this is very important because it's not just a bailout. It's giving money from the state level down to the local level where it's needed, and also ensuring that those city run pension plans are building in the reforms and the changes that they need to reduce risk to make sure that they're on the path to full funding within a reasonable amount of time, and that they're no longer able to just skirt the annual payments that they should be making. So that's probably one of the best examples I've seen across the country as far as how a state can help local plans pay for that growing burden. There's a lot of different methods as well that can be explored, but that's usually the thinking when you're talking about local plans and dealing with this oversized burden that their little budgets can't handle.

Keely (27:53):

Okay. So Oliver, this is something you've done research on quite a bit of research on too. I mean, so do you have other examples or what's your insight on this whole issue of funding pensions versus city solvency?

Oliver Giesecke (28:11):

Yeah, that's a good question. We did like an analysis to where we looked at chapter nine bankruptcy. Since 2000, we found about 37 of general governments. And it turns out that in the majority of those cases, pension were a major contributing factor. So often in some cases, that results in full chapter nine bankruptcy, but in a lot of cases, some of them I mentioned already, these are being resolved in five years maybe until there would be a bankruptcy consideration. So I think preemptive measures are really like the key. And usually we have seen that, for instance, in the case of Milwaukee Wisconsin, that comes with some sort of concessions from the state government. So Wisconsin was allowed to lobby a local sales tax. Milwaukee was also allowed to get a larger share of the sales tax that's generated at the state level. So there's a lot of cooperation, and hopefully we won't see many more chapter nine bankruptcy because of pension, because lawmakers are preemptive in what they do.

Keely (29:27):

So Oliver, what do you think they have done that will prevent us from being in the same situation we saw after the crash where, I mean, we had three California cities that went into municipal bankruptcy. Detroit. Do you think what state government is doing and city governments are doing has gone far enough to prevent that?

Oliver Giesecke (29:50):

Well, that's obviously a very difficult question. I mean, most of the bankruptcies are liquidity driven, and in our, obviously the Great Recession was a very specific circumstances where the housing market crashed, and city budgets are inherently tied to the housing market. So hopefully we don't see a crash like that anytime in the future. But I think pensions, pension have a fairly predictable expense liability pattern. So one can easily do major reforms like five or 10 years in advance.

Keely (30:30):

So Kurt, you said that some cities and school districts in California have been falling back on bad practices that caused them some problems after the crash. Can you speak to that?

Kurt Snyder (30:44):

So I think, I'm not sure what you're referring to, but I mean, I think a lot of cities try to put as little as they can in the pension plan, and every once in a while they'll see their costs going up and up and up, and then they'll try to find some way to reduce those costs by funding the pension. Sometimes it involves PABs or some other kind of one-time way to sort of shore up the pension and then revert back to paying as little as possible for as long as possible. And just seeing those costs ratchet up again. So that's one thing that we see some.

Keely (31:28):

So what I was referring to is what I alluded to at the beginning is that a lot of cities like overpromised on pensions because the stock market was doing well back in the day in the nineties, and that everything just kind of snowballed a little bit like along the way. And you and I were talking about how you are seeing some situations where cities are, again, not maybe taking into account how underfunded their pensions are or kind of staying on the path of fiscal responsibility to get to 100% funded.

Kurt Snyder (32:11):

Yeah, I think they tend to look at this kind of 100% funding target as this sort of hypothetical thing, that 80% is pretty good. And really, if they thought of it in terms of the benefits that their employees are earning along with their salaries, they do manage to pay a hundred percent of people's salaries as they earn it. They should have the same goal with regard to the pension and keep it close to that a hundred percent target in order to keep the cost down, right? Because deferring the cost just makes the cost go up. And we do see cities pointing to those higher pension costs to say, oh, we can't give raises because the pension's so expensive, when really it was their own hesitancy to put the money into the fund in the first place. That kind of got 'em in that situation. And it's something that employees have stood for a long time thinking, well, if they don't put it in the pension, maybe they'll give us a better raise. And in the long run, it's not working out good for employees either.

Keely (33:24):

So Zach, let's talk about pension obligation bonds. They became very controversial during the bankruptcies and everybody, a lot of investors were saying they would never invest in them. And then we had the typical forgetfulness around them, I guess because four or five years later, Citi started issuing them again and investors were gobbling them up. What's your take? Are they a good idea? Are they a bad idea? Do you think it's a good way to deal with a pension overhang?

Zachary Christensen (34:00):

Yeah, great question. And I figured here at a conference like this, this would be a very relevant subject. A pension obligation bond is a way that a pension can get some money right now. So if they issue a pension obligation bond, they can get that money right now. And the thinking is that, okay, if we have that money, we can pay down these unfunded liabilities. That money in our fund is going to be able to compound interest like the rest of our assets. And if everything works perfectly, you'll end up saving money in the long run. And the math works out. If you do the math, it can work. Our experience with working with these is it doesn't work perfectly usually, and it doesn't go perfectly. That's something that policy makers need to account for and make sure that they're very aware of. Generally, we do not advise cities and states to issue public pension obligation bonds simply because it's just an arbitration, or I'm sorry, an arbitrage strategy where you're just moving debt from one place to another and it's still there.

(35:07)

And we've found that too many times it releases the natural pressures that should be there to push them toward reforming the benefits that were being promised. So essentially they're paying for these benefits that they promised and weren't able to fulfill. And then not only that, they're not fixing the issues that created that unfunded liability to begin with. So it's usually not a great idea to seek out these pension obligation bonds. The timing of that also determines how successful they will be on these. I was just looking at an s and p report released just earlier this month, I believe, and they saw that 32 cities in California issued public pension obligation bonds in 2021 when the getting was good. Right now, interest rates are up, that's pretty much come down to zero. So that's naturally right now would probably be the worst time to issue A POB. So I'm glad they're not doing it. But I will tell you just from some of the communications and the interactions we've had with other states and other cities, there are cities that are still looking into PBS right now, which is a little scary. It tells you how desperate they are.

Keely (36:16):

So are you going to name names and tell us which cities are thinking about it?

Zachary Christensen (36:20):

I'll not.

Keely (36:21):

Okay. So Oliver, could you address that too? I mean, what's your take on pension obligation bonds? Do you think they're a good idea or a bad idea?

Oliver Giesecke (36:30):

Well, ultimately it's a gamble, right? I mean, I can ask how many of you have gone to the bank, have taken out a personal loan and put the money back into the stock market? I suppose not many of you. And that's exactly what cities are doing on behalf of their residence. And I don't think it's a question to what extent that is in the interest of the citizen that ultimately on the receiving side of the gamble, I don't think that's necessarily reflects the preferences.

Keely (37:07):

So it looks like we're coming close to the end of our time. I'm going to open it up for audience questions. I don't know if there's somebody circulating with the microphone. There's someone right over there.

Audience Member 1 (37:22):

So could you comment a little bit on what you're seeing in pensions now in California as a result of some of the PEPPER and the changing composition of the workforce now with those reduced pension benefits and 50 50 contributions by the part of the employer and the employee?

Kurt Snyder (37:41):

I guess I'll take that one. So yeah, we do. We have noticed that about half of the workforce now across most of these agencies is PEPPER employees, which is a little surprising that it only really took 10 years to turn over half the workforce, but it is the baby boom is retiring, right? So that's what we're seeing. We're seeing that they have a little bit higher average entry age than what we saw in the past. So that's kind of interesting. We have heard from a lot of unions, particularly some of the safety unions, the firefighters where the cap they see as a real problem, the compensation cap, because they're projected to hit that cap and they feel like they're not getting a full pension for their work. Now, something that I brought to their attention, and I'll bring to yours, that when the pension law put in that cap, it said, look, this cap is, there's no benefit on salary above that cap. There's also no contributions to the pension on salary above that cap. And there's also, employers can put in a DC plan for salary above that cap to top off their pensions. And we see very few employers doing that. So that's kind of interesting.

(39:16)

But as far as overall, what's this going to mean for cities to maintain workforces, I don't think it was that drastic of a change. It's still a better pension than you're going to get in the private sector. You're still going to attract employees and hopefully it'll be more affordable for the employer in the long run.

Keely (39:47):

Does anyone else have a question? Okay, if that's all the questions, I guess that's a wrap. Thanks everybody for coming to our talk onpensions.