The Congress partly addressed the plans’ unfunded liability with the District of Columbia Retirement Reform Act of 1979, which changed the District’s payments to the plans to a modified pay-as-you-go basis and authorized annual federal payments to the plans of about $52.1 million. The House bill and the District’s act would eliminate the unfunded liability in the year 2035, mainly by increasing the obligations of the federal government, active plan participants, and retirees, and by placing the District’s contributions on an actuarial basis. Specifically, he asked us to provide the history and current status of the plans’ unfunded pension liability and the number of plan participants before Home Rule, including a comparison of the plans’ unfunded liability with other state and local plans, and an analysis of the District’s funding formula under the proposed legislation and alternative federal funding methods. The report also pointed out that, under the District’s funding formula, in 2005 the unfunded liability would be $8 billion and that the District’s required contribution would be $795 million—about 85 percent of the payroll for the three plans. Proposed Legislation Would Eliminate the Unfunded Liability

The District government deliberated the issue of the three plans’ unfunded liability and enacted legislation to eliminate it. Both bills included provisions for increasing the federal government’s and employees’ obligations and placing the District’s contributions on an actuarial basis. 3.2). Using this approach, the District’s contributions would be slightly lower than current costs in the first few years, then increase in step with payroll. As table 3.1 shows, for example, the 1996 payment is $32.7 million more than the actuarially determined amount. A more equitable federal funding method, which shifts less of the burden to the future, would be a constant annual payment, as under current law (see further discussion in ch. 4).
Why GAO Did This Study

Pursuant to a congressional request, GAO reviewed the District of Columbia's pension plans for certain employees, focusing on: (1) the history and status of the plans' unfunded pension liability and the number of plan participants prior to Home Rule; (2) a comparison of the plans' unfunded liability with other state and local plans; and (3) the District's funding formula under the proposed legislation and alternative federal funding methods.

What GAO Found

GAO found that: (1) the District's pension plans were originally funded on a pay-as-you-go basis with no accrual of monies for future liabilities; (2) even when the plans were put on an actuarial basis, the District's contributions to the pension funds were lower than needed to eliminate the unfunded liabilities; (3) the District's pension plans are not as well funded as some comparable state and local plans; (4) the proposed legislation would eliminate the plans' unfunded liability in 2035 by increasing federal payments, decreasing benefits and cost-of-living adjustments, and placing the District's contributions on an actuarial basis; (5) under the proposed funding method, the federal government would assume about $1 billion of the District's obligations, most of which would be paid in future budget years because of the 5-percent annual increase in the federal payments; (6) the District's contributions for the first 3 years would be at the required minimum and would be higher than the actuarially determined amounts; (7) a constant federal payment of about $102.1 million would shift less of the contribution burden to future federal budgets and taxpayers and would help eliminate the unfunded liability; and (8) options to lower annual federal payments would eliminate the unfunded liability but increase the District's contributions.