The University System of Georgia has shorted its employees’ pension fund over $600 million since it stopped making legally required payments to the fund over a decade ago, according to a state audit.
When the Optional Retirement Program, a 401(k) plan for USG employees, was created in 1990, legislation required the USG to make two types of annual payments to the Teacher Retirement System to make up for fewer employees paying into the TRS pension fund. Roughly 400,000 current and former teachers, librarians and university faculty and staff are part of TRS.
One of those required payments has not been made since 2008, equaling an estimated $600 million to $660 million, according to the audit. The other payment has never been made, and state auditors don’t know the amount. The audit also found that USG shorted Optional Retirement Program members $12.6 million in fiscal year 2007.
The first payment required by a 2010 law requires USG to make an unfunded accrued liability payment to the TRS equal to the amount that would have been made for ORP employees if they joined TRS. But TRS never billed USG for those payments from 2008–2018.
Like many pension funds, TRS investments took a beating during the Great Recession. The financial stability of TRS has been questioned in recent years, especially among state politicians who have repeatedly had to pull from the state treasury to keep the system afloat. Just this year, the General Assembly was forced to pour nearly $600 million into the system. In 2017, the legislature voted to spend $223 million to keep the system financially stable.
While USG was not making payments into the TRS, state auditors said USG requested appropriations from the General Assembly to cover its TRS retirement costs, which included $250 million for the unfunded accrued liability payment.
According to the audit, the USG budget staff told auditors they “did not know or understand all of the underlying assumptions of their budget calculations.”
State auditors found that the missed payments did not affect university employees, but did cost colleges, universities and public school systems, such as the University of Georgia, that had to make up for what USG did not pay. In turn, these institutions were charged “higher TRS employer contribution rates,” according to the audit. UGA had no comment.
If USG wasn’t making payments to TRS, where did the roughly $600 million go? State auditors don’t know. The Georgia Constitution gives USG broad authority to spend its appropriations however it wants. Vice Chancellor for Communication Jen Talaber Ryan said USG is not receiving excess funds, and is still grappling with $1.2 billion in annual austerity reductions dating back to the economic downturn that started in 2007.
USG officials deny they owe TRS any payments. “The University System of Georgia has several significant concerns with the conclusions and recommendations of the Department of Audit and Accounts’ special review,” according to a statement from Ryan. “USG does not believe it adequately presents critical information for use by policymakers. Further, it is not reflective of past sound decisions made by TRS and is inconsistent with advice received from the Attorney General.”
The audit recommended that TRS “should calculate and bill for the amount of the unfunded accrued liability and normal cost owed by USG associated with ORP members for fiscal year 2019 and each year going forward.” In a statement to Flagpole, Ryan said USG does not agree with this recommendation.
The audit also stated that the General Assembly “should review the current budget process to determine whether USG is receiving an appropriate amount to fund retirement benefits.” State auditors and USG agree that if the General Assembly wants to bail USG out of making payments to TRS, the 2010 law requiring USG to fund TRS will need to be repealed or revised.
In addition, the audit found an administrative error that resulted in ORP members being shorted $12.8 million in fiscal year 2007. State auditors recommended USG make contributions to ORP member accounts to make up for that error.
Even if USG is not legally bound to reimburse for the administrative error, auditors recommend USG make up for the error because the Governmental Accounting Standards Board says that “even if the agreement may not be legally enforceable, the government may have a liability due to the social, moral, or economic consequences.”
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