District Pensions: Federal Options for Sharing Burden to Finance Unfunded
Liability (Chapter Report, 12/28/94, GAO/HEHS-95-40).

With a total unfunded liability of about $5 billion in 1993, the three
District of Columbia pension plans continued to be not as well funded as
24 comparable state and local governmental pension plans. Under the
funding method proposed by the District of Columbia Pension Liability
Funding Reform Act of 1994 (H.R. 3728) and a companion District bill,
about $1 billion in value today of contributions that the District would
make under the existing law would be shifted to the federal government.
However, because the approach would entail federal payments escalating
at five percent per year through 2035, more of the burden of eliminating
the unfunded liability would shift to future federal budgets and
generations of federal taxpayers. In contrast, a constant annual federal
payment of $102.1 million would shift less of the burden to future
federal budgets and taxpayers, cost the federal government a little less
overall, and have the same effect as H.R. 3728 in stabilizing the
District's contributions at about 45 percent of payroll while
eliminating the liability. Other options with lower constant annual
federal payments would also eliminate the liability but the District's
contributions would be higher. Also, under the District's act, its
contributions for the first three years would be at the required minimum
of $295.5 million. GAO notes that these payments would be about $58
million higher than the actuarially determined amounts.

--------------------------- Indexing Terms -----------------------------

 REPORTNUM:  HEHS-95-40
     TITLE:  District Pensions: Federal Options for Sharing Burden to 
             Finance Unfunded Liability
      DATE:  12/28/94
   SUBJECT:  Retirement pensions
             Funds management
             Government retirement benefits
             Cost sharing (finance)
             Government liability (legal)
             Municipal governments
             Proposed legislation
             Employee retirement plans
             Future budget projections
             Financial analysis
IDENTIFIER:  District of Columbia Pension Liability Funding Reform Act 
             of 1994
             DC Judges Retirement Fund
             DC Police Officers and Fire Fighters Retirement Fund
             DC Teachers Retirement Fund
             Civil Service Retirement System
             District of Columbia
             
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Cover
================================================================ COVER


Report to the Ranking Minority Member, Committee on the District of
Columbia, House of Representatives

December 1994

DISTRICT PENSIONS - FEDERAL
OPTIONS FOR SHARING BURDEN TO
FINANCE UNFUNDED LIABILITY

GAO/HEHS-95-40

District Pensions


Abbreviations
=============================================================== ABBREV

  CSRS - Federal Civil Service Retirement System
  DCRB - District of Columbia Retirement Board
  OMB - Office of Management and Budget

Letter
=============================================================== LETTER


B-257469

December 28, 1994

The Honorable Thomas J.  Bliley, Jr.
Ranking Minority Member
Committee on the District of Columbia
House of Representatives

Dear Mr.  Bliley: 

This report responds to your request that we provide certain
information concerning the District of Columbia's pension plans for
police officers and fire fighters, teachers, and judges.  You also
asked for information on the impact that H.R.  3728 would have on the
unfunded liability of these plans.  As agreed with your office,
unless you publicly announce its contents earlier, we plan no further
distribution of this report until 15 days from the date of this
letter.  At that time we will send copies to the Mayor of the
District of Columbia, the Chairman of the City Council, the Chairman
of the Retirement Board, and other interested parties. 

Our work was performed under the direction of Donald C.  Snyder,
Assistant Director, Income Security Issues.  Other major contributors
are listed in appendix IV.  If you or your staff have any questions
concerning this report, please call Mr.  Snyder at (202) 512-7204. 

Sincerely yours,

Leslie G.  Aronovitz
Associate Director
Income Security Issues


EXECUTIVE SUMMARY
============================================================ Chapter 0


   PURPOSE
---------------------------------------------------------- Chapter 0:1

The District of Columbia's financial resources are severely strained. 
Contributing to this situation are the payments that the District
makes for its pension plans covering some 24,000 current and former
police officers, firefighters, teachers, and judges.  Moreover,
despite the federal and District governments' contributions--about
$52 million and $292 million, respectively in 1993--the plans
continue to experience a shortfall in funding their future retirement
benefits.  The shortfall totalled about $5 billion in 1993. 

H.R.  3728, the District of Columbia Pension Liability Funding Reform
Act of 1994, and a companion District bill were proposed to eliminate
this liability.  To enable a full evaluation of this proposal, the
Ranking Minority Member of the House Committee on the District of
Columbia requested GAO to provide

the history and current status of the plans' unfunded pension
liability and the number of plan participants before Home Rule, to
include 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. 


   BACKGROUND
---------------------------------------------------------- Chapter 0:2

During the period 1916-70, the Congress created the District's
pension plans for police officers and firefighters, teachers, and
judges and authorized funding to pay their current annual retirement
benefits.  This funding method, however, was not consistent with
actuarial principles, which provide that moneys should be put aside
each year to help ensure that adequate funds are available to meet
pension obligations in the future.  The responsibility for making
these payments was transferred to the District in January 1975,
effective with its grant of Home Rule. 

Beginning in the mid-1970s, the Congress became concerned with the
plans' lack of funding for paying future retirement benefits--known
as the plans' unfunded liability--and held deliberations on proposed
legislation that sought to eliminate this liability and to place the
plans' funding on a sound actuarial basis.  The Congress partly
addressed this concern with the enactment of the District of Columbia
Retirement Reform Act of 1979, which established separate funds for
the three pension plans. 

The act authorized 25 years of annual federal payments (ending in
2004) for financing the unfunded liability for the benefits earned by
most retirees as of the effective date of Home Rule--defined as the
federal share and estimated to be about $.7 billion.  The act,
however, did not provide for the District to finance the remaining $2
billion portion of the then unfunded liability because it was
believed that the District's financial resources would not enable it
to do so.  Upon the enactment of the 1979 reform act, the plans'
unfunded liability was estimated at about $2.7 billion, representing
the benefits earned by about 7,700 retirees and about 14,100 active
plan participants as of January 2, 1975, the effective date of Home
Rule. 

H.R.  3728 and a companion District bill\1 were proposed as a means
to reduce the increasing financial burden on the District from the
plans' unfunded liability and to eliminate it by the year 2036.  This
would be accomplished through:  (1) increasing and extending the
current annual federal payment of $52.1 million by 5 percent each
year from 2005 through 2035; (2) placing the District's contributions
on a sound actuarial basis as a level percentage (45 percent in this
case) of payroll--an approach used by most public sector plans; (3)
increasing the employees' contributions by 1 percentage point of
salaries; (4) reducing retired employees' cost-of-living increases
from twice to once per year; and (5) setting a $295.5 million floor
for the District's annual contributions. 


--------------------
\1 District Council Bill 10-515 was subsequently enacted as D.C.  Act
10-239, the Full Funding of Pension Liability Retirement Reform
Amendment Act of 1994.  The act contains provisions regarding the
District's contributions that are not in the House bill.  However,
the act is not effective until companion federal legislation is
enacted. 


   RESULTS IN BRIEF
---------------------------------------------------------- Chapter 0:3

With a total unfunded liability of about $5 billion in 1993, the
three District plans continued to be not as well funded as 24
comparable state and local governmental pension plans.  Under the
funding method proposed by H.R.  3728 and D.C.  Act 10-239, about $1
billion in value today of contributions that the District would make
under the existing law would be shifted to the federal government. 
However, because the approach would entail federal payments
escalating at 5 percent per year through 2035, more of the burden for
eliminating the unfunded liability would shift to future federal
budgets and generations of federal taxpayers. 

In contrast, a constant annual federal payment of about $102.1
million would shift less of the burden to future federal budgets and
taxpayers, cost the federal government a little less overall, and
have the same effect as H.R.  3728 in stabilizing the District's
contributions at about 45 percent of payroll while eliminating the
liability.  Other options with lower constant annual federal payments
would also eliminate the liability but the District's contributions
would be higher. 

Also, under the District's act, its contributions for the first 3
years would be at the required minimum of $295.5 million.  GAO notes
that these payments would be about $58 million higher than the
actuarially determined amounts. 


   GAO'S ANALYSIS
---------------------------------------------------------- Chapter 0:4


      CONCERNS WITH THE DISTRICT'S
      FINANCES RESULTED IN LOWER
      CONTRIBUTIONS THAN NEEDED TO
      ELIMINATE THE UNFUNDED
      LIABILITY
-------------------------------------------------------- Chapter 0:4.1

In 1978, the Congress passed legislation that would have committed
the federal government to pay $65 million annually for 25 years to
pay off the part of the three plans' unfunded liability that
represented the benefits of those individuals who had retired as of
the effective date of Home Rule.  However, the legislation did not
provide for the District to pay off the then unfunded liability of
about $2 billion for the benefits earned by those employees who were
not retired effective with Home Rule because it was believed that the
District's finances would not be adequate to do so.  Then President
Carter, however, vetoed the legislation on the grounds that the
required annual federal contribution of $65 million overstated the
federal liability. 

The following year, the Congress passed compromise legislation that
the President signed.  The District of Columbia Retirement Reform Act
of 1979 provided for annual federal payments of about $52.1 million
from 1980 through 2004.  The 1979 reform act continued to reflect
earlier concerns about the District's financial ability, in the near
and long term, to pay off its share of the unfunded liability.  Thus,
the formula in the reform act for calculating the District's annual
contributions--now about $295 million--basically has allowed the
District's share of the unfunded liability to increase with
inflation, so that in 1993 it was about $5 billion, and it may reach
$6.1 billion by 2005.  Under the formula in the act, the liability
will not be eliminated but will remain constant in 2005 and
subsequent years because the District is required to pay each year
just the net normal cost--the difference between employee
contributions and the retirement benefits they earned during the
year--and interest on the unfunded liability. 

The effect of the funding formula in the 1979 reform act has been to
limit the three plans' funded status so that they continue to be not
as well funded as 24 comparable state and local governmental plans. 


      PROPOSAL WOULD ELIMINATE
      UNFUNDED LIABILITY WITH
      INCREASED FEDERAL ASSISTANCE
-------------------------------------------------------- Chapter 0:4.2

H.R.  3728, in conjunction with D.C.  Act 10-239, would eliminate the
three plans' unfunded liability in the year 2035 in part through
increased federal payments.  The total federal obligation--which
under the existing law has a value today of about $392 million--would
be increased by about $1.1 billion, by extending the payments beyond
the 2004 cut-off year in current law to 2035 and providing for a
5-percent increase in each year's contribution.  The federal payments
would grow substantially because of the 5-percent compounding effect,
rising from $54.7 million in 1996 to about $367 million in 2035. 
Under the proposed legislation, the increase in federal payments
would be accompanied by a $1.2 billion decrease in District payments
from the level required by current law.  The bill would decrease the
District's obligation from about $8.2 billion to about $7 billion. 

Also, under District Act 10-239, the District's contributions for the
first 3 years would be at the required minimum of $295.5 million. 
GAO's analysis showed that this requirement results in the District
paying a total of about $58 million more than actuarially required
during these years. 


      FEDERAL OBLIGATION SMALLER
      UNDER ALTERNATIVE FEDERAL
      PAYMENTS
-------------------------------------------------------- Chapter 0:4.3

GAO analyzed the effect of four alternate federal payments of
constant annual amounts through 2035 compared with the effect of the
escalating federal payments proposed by H.R.  3728.  The analysis
showed that the greatest federal savings would be realized by
extending the current federal payment of $52.1 million.  Although
constant federal payments of $72.1 million and $92.1 million would
result in smaller federal savings and smaller increases in the value
of the District's total obligation, the District's annual payments as
a percentage of payroll would still be greater than under H.R.  3728,
ranging from 48 percent to 46 percent.  However, constant annual
federal payments of about $102.1 million would, as under H.R.  3728,
stabilize the District's contributions at about 45 percent of payroll
and help eliminate the unfunded liability in the year 2035.  However,
this would cost the federal government about $40 million less than
under H.R.  3728's approach of escalating payments. 


   MATTERS FOR CONGRESSIONAL
   CONSIDERATION
---------------------------------------------------------- Chapter 0:5

If the Congress wishes to change the law to increase federal payments
to the three District pension plans, it should consider authorizing a
constant annual payment rather than the increasing payments provided
for in H.R.  3728.  A constant annual payment approach would be more
equitable because it would avoid shifting to future taxpayers a
disproportionate share of the burden of financing the three plans. 
In addition, if the Congress concludes that the federal share should
be increased in total by the amount authorized in H.R.  3728,
calculated at about $1.1 billion in today's dollars, the appropriate
constant annual federal payment would be $102.1 million. 


   AGENCY COMMENTS
---------------------------------------------------------- Chapter 0:6

GAO did not obtain agency comments on this report but discussed with
District officials the history and status of the three pension plans
to ensure that the report's descriptions are accurate and complete. 


INTRODUCTION
============================================================ Chapter 1

As of September 30, 1993, the District of Columbia's three defined
benefit pension plans\2 for police officers and firefighters,
teachers, and judges had a total of about 24,000 participants. 
During 1993, the District contributed a total of about $292.3 million
to the plans and the federal government paid about $52.1 million. 

The Congress created the three plans over a number of years beginning
early in this century.  Under the plans' enabling legislation, only
the federal government paid into the plans and did so just for
current annual retirement benefits (known as pay-as-you-go funding). 
The Congress did not authorize accumulating funds to meet the plans'
normal costs--the amount of funds needed each year that would be
sufficient to pay all retirement benefits of active plan participants
when due.  Effective with Home Rule in January 1975, the
responsibility for making the pay-as-you-go payments was transferred
to the District government. 

Because the plans' normal costs were not funded, the shortfall in
funds needed to pay future retirement benefits--the plans' unfunded
liability--increased each year.  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.  Consequently, the
contribution requirements in the reform act did not provide for
amortizing (paying off over a number of years) the plans' unfunded
liability. 

In November 1992, we reported that the plans' unfunded liability had
grown to about $5 billion and that they were not as well funded as
other public plans.\3 Our report also noted that the District faced
an increasing demand on revenues from the three plans.  We reported
that by the year 2005 its contributions could grow to about 15
percent of revenues ($640.2 million), compared with about 8 percent
($234.9 million) in 1991. 

Similarly, as shown in figure 1.1, without changes to the current law
the District's contributions to the three plans as a percentage of
payroll will increase from 54 percent to a high of 71 percent in
2005, when federal contributions cease. 

   Figure 1.1:  District
   Contributions as a Percent of
   Payroll Under Current Law
   (Fiscal Years 1995-2040)

   (See figure in printed
   edition.)

Since our report, there has been much discussion about how to address
these plans' continued underfunding.  H.R.  3728, in conjunction with
D.C.  Act 10-239, has been proposed as one means to do so.  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.  (See chapter 3
for a full discussion of these provisions.)

Concern for the plans' underfunding was heightened by the District's
recent cash flow difficulties.  These difficulties caused the
District to defer its contributions to the funds for the second and
third quarters of fiscal year 1994 until fiscal year 1995.  This
action led to a lawsuit by the District of Columbia Retirement Board
(DCRB) that required the contributions to be made.  We reported in
June 1994\4 that the District is faced with both unresolved long-term
financial issues and continued short-term financial crises, such as a
significant and continuing decline in its cash position. 

Placing the plans' funding on an actuarial basis and eliminating
their unfunded liability would relieve the District of a significant
financial burden.  Such action would also help ensure that sufficient
funds are available to pay future retirement benefits. 


--------------------
\2 In a defined benefit plan, the employer promises a specific
benefit that is generally based on an employee's years of service,
earnings, or both. 

\3 See Districts' Pensions:  Billions of Dollars in Liability Not
Funded (GAO/HRD-93-32, Nov.  30, 1992). 

\4 See Financial Status:  District of Columbia Finances
(GAO/AIMD/GGD-94-172BR, June 22, 1994). 


   OBJECTIVES
---------------------------------------------------------- Chapter 1:1

To fully evaluate H.R.  3728, the Ranking Minority Member of the
House Committee on the District of Columbia requested us to provide
certain information related to the three plans and their unfunded
liability.  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. 


   SCOPE AND METHODOLOGY
---------------------------------------------------------- Chapter 1:2

To develop the history of the plans' unfunded liability, we reviewed
the legislative history of the District of Columbia Retirement Reform
Act of 1979, which established the pension funds for the three plans. 
We also reviewed the reports of commissions that had been established
at various times by the Congress and the District government to
evaluate the District's fiscal activities, including reviews of the
plans' pension funds.  In addition, we held discussions with and
obtained information from District government and DCRB staff and
officials, such as the number of plan participants before Home Rule. 

To compare the three plans' unfunded liability with other state and
local plans, we obtained survey data published in March 1993 by the
Public Pension Coordinating Council.  We used these data to update
the comparison of the funding status of the three District plans with
24 comparable defined benefit state and local governmental pension
plans in our November 1992 report. 

To analyze H.R.  3728 and the companion District act we used, in
part, a study of the bill that was done for DCRB by Milliman &
Robertson, Inc., its actuarial consultants.  In addition, we reviewed
the actuarial model developed by the firm and used it to determine
the potential effects of alternate funding methods for eliminating
the three plans' unfunded liability.  This model includes typical
actuarial assumptions about rates of inflation, wage increases, and
investment earnings.\5

Our work was performed from January through October 1994 in
accordance with generally accepted government auditing standards.  We
did not obtain agency comments on this report.  However, we discussed
the history and status of the three pension plans with District
officials to ensure that the report's descriptions were accurate and
complete. 


--------------------
\5 We presented the preliminary results of our work at the June 14,
1994, hearing of the Subcommittee on Fiscal Affairs and Health, House
Committee on the District of Columbia.  See D.C.  Pensions:  Plans
Consuming Growing Share of District Budget (GAO/T-HEHS-94-192, June
14, 1994). 


HISTORY AND CURRENT STATUS OF
THREE DISTRICT PENSION PLANS
============================================================ Chapter 2

When the Congress created the District's plans for police officers
and firefighters, teachers, and judges, it provided for funding them
on a pay-as-you-go basis.  Beginning in the mid-1970s, congressional
committees considered various proposals to fund the plans on an
actuarial basis and to eliminate their unfunded liability.  In 1978,
the Congress passed one proposal that, however, was vetoed because
the federal funding obligation was deemed too high.  In 1979,
compromise legislation was enacted that provided for lower federal
funding and modified pay-as-you-go payments for the District. 
Because this legislation did not provide for eliminating the plans'
unfunded liability, the liability had increased to $5 billion in
1993, with the plans continuing to be not as well funded as other
comparable public plans. 


   PLANS INITIALLY FUNDED ON
   PAY-AS-YOU-GO BASIS
---------------------------------------------------------- Chapter 2:1

The Congress created defined benefit pension plans for District of
Columbia police officers and firefighters, teachers, and judges at
different times:  police officers and firefighters in 1916; teachers
in 1920; and judges in 1970.  These plans were funded on a
pay-as-you-go basis, which meant that they received only enough money
to pay current annual retirement benefits but did not accumulate any
funds with which to meet the constantly accruing future pension
liabilities of their participants. 

In 1946, however, the funding of the teachers' plan was changed to an
actuarial basis so that the District's contribution covered the
normal cost of the plan as well as amortizing the accrued unfunded
liability over a 20-year period.  Subsequently in 1968, the
District's commissioners requested and were granted permission by the
Congress to fund only the normal cost of the plan each year because
of the need to use revenues for other purposes.  This change was
enacted in 1970 by Public Law 91-263, which put the fund on a
modified pay-as-you-go basis, covering only the normal cost each
year.  This law also froze the fund at its June 20, 1969, balance of
$61.8 million and mandated that it remain at that level or the amount
of the employees' equity, whichever was greater. 


   EARLY ATTEMPTS TO FUND PLANS
   WERE NOT SUCCESSFUL
---------------------------------------------------------- Chapter 2:2

Congressional concern with District operations led to the
establishment of the Commission on the Organization of the Government
of the District of Columbia (Nelsen Commission) in September 1970. 
The commission's charter was to analyze the District government's
operations with the goal of promoting increased economy and
efficiency.  Accordingly, the scope of the commission's review
included the District's pension plans for police officers and
firefighters and teachers (the judges plan was not within its
charter).  The commission's August 1972 report\6 recommended the
creation of a separate pension fund for police officers and
firefighters that would invest moneys not required for current
operations and have periodic Department of the Treasury actuarial
valuations.  In addition, the commission recommended actions to
reverse the increase in the unfunded liabilities in the police
officers' and firefighters' and teachers' plans and to provide a
means for financing any liberalization of their benefits that might
be approved in the future. 

In May 1974, in response to the Nelsen Commission report, the
Chairman of the House Subcommittee on Revenue and Financial Affairs,
Committee on the District of Columbia, introduced H.R.  15139,
intended to establish and finance a pension fund for police officers
and firefighters.  There was opposition from the Office of Management
and Budget (OMB) and the bill died in Subcommittee. 

The Congress took no further action on the pension funding issue
until March 1976,\7 when legislation was considered by the House
Subcommittee on Fiscal Affairs, Committee on the District of
Columbia.\8 An objective of the legislation was to establish an
actuarially sound basis for financing retirement benefits in the
plans for police officers and firefighters, teachers, and judges. 
H.R.  14960 was reported out by the full Committee in August 1976,
but was not considered by the House because of opposition by OMB. 


--------------------
\6 Report of the Commission on the Organization of the District of
Columbia, House Document No.  92-317 (Aug.  17, 1972). 

\7 Effective January 2, 1975, the District of Columbia was granted
Home Rule.  Under this law, a number of functions formerly
administered by the federal government were moved to the control of
the District government.  With this authority also came increased
financial and fiscal responsibilities. 

\8 In March 1976, H.R.  12441 was considered by the Subcommittee on
Fiscal Affairs.  In June of that year, the House Committee on the
District of Columbia held hearings and markups on H.R.  13467 and, in
August, on H.R.  14960.  Both bills encompassed H.R.  12441, as
amended. 


   FEDERAL AND DISTRICT SHARES OF
   UNFUNDED LIABILITY DEFINED
---------------------------------------------------------- Chapter 2:3

On April 6, 1977, the House Subcommittee on Fiscal Affairs, Committee
on the District of Columbia, reported out H.R.  2465.  Subsequently,
the bill was reported out of the Committee on April 26, 1977;
introduced in the full House as H.R.  6536; and passed in September
1977.  This legislation authorized a total federal contribution of
about $769 million over 25 years, starting at about $48 million in
1978 and declining to $2 million in 2003, to help finance the
liabilities for retirement benefits incurred before Home Rule. 

Later that year, in November 1977, the Senate considered S.  2316,
which differed somewhat from H.R.  6536.  Among other things, the
Senate bill required annual federal payments of $80 million for 25
years and included tougher standards for disability benefits.\9 The
federal payments were intended to amortize the unfunded liability of
about $1.05 billion for retirements that had occurred before Home
Rule; this liability was deemed to be the federal share of the total
unfunded liability of about $2.09 billion that had been incurred up
to that time.  The remaining balance of $1.04 billion, which was
attributable to nonretirees, was deemed to be the District's share of
the total unfunded liability.  (Subsequently, the Department of the
Treasury calculated that the total unfunded liability was about $2.7
billion--see p.  19.)

However, the formula in the Senate bill for computing the District's
annual contributions did not provide for amortizing the District's
share of the unfunded liability.  While the Committee report on the
bill recognized that actuarially based funding required the liability
to be amortized, the report also stated that in the long run full
funding of the District's share was fiscally impossible given its
strained financial circumstances and competing claims on revenues. 
However, the Committee believed that the District could afford to
pay--for an initial interim 25-year period, as the federal share was
being amortized--the lesser of (1) the net normal cost plus interest
on its share of the unfunded liability and (2) the net pay-as-you-go
cost plus an amount that, paid annually to 2003, would allow the
District's share of the unfunded liability to increase by no more
than the rate of inflation.  Thereafter, the District would pay the
net normal cost plus interest on the unfunded liability. 

The Senate passed H.R.  6536, which had been amended to incorporate
S.  2316.\10 In October 1978, the House and Senate conference
committee reported out H.R.  6536, which authorized a smaller federal
contribution of $65 million annually over 25 years. 


--------------------
\9 The report accompanying S.  2316 noted that in the District (1) in
1969, of the total number of retirees, 99 percent of firefighters and
98 percent of police were retired on disability, and (2) in 1977, 63
percent of firefighters and 52 percent of police retired on
disability.  The report contrasted these data with disability
retirements between 15 and 46 percent in other cities between 1971
and 1975.  Thus, S.  2316 sought to eliminate "...costly abuses that
have added substantially to the rising cost of the pension system."

\10 The report accompanying S.  2316 indicated that if as a result of
revised actuarial calculations the federal payments authorized in the
bill were insufficient to pay the federal share of the unfunded
liability for persons retired before Home Rule, additional funds
would be authorized and appropriated to reduce the federal obligation
of the unfunded liability to zero by the end of fiscal year 2003. 


   CONTROVERSY OVER APPROPRIATE
   LEVEL OF FEDERAL CONTRIBUTIONS
---------------------------------------------------------- Chapter 2:4

In November 1978, then President Carter vetoed H.R.  6536.  His veto
message articulated two principal arguments:  the federal
contribution authorized by the Congress overstated the appropriate
federal liability, largely because the existing liability was due to
abuses of the disability retirement statutes before Home Rule; and
the amount authorized ignored the continuing federal contribution for
thousands of District employees covered by the federal Civil Service
Retirement System (CSRS).\11

The Carter administration stated that it was willing to assume 60
percent of the cost of moving the affected District plans to an
actuarially sound system.  Under this proposal, the federal
government would have contributed $462 million over 25 years. 
However, the veto message noted that with H.R.  6536 the Congress
supported a more costly funding method that obligated the federal
government to pay about $1.6 billion over the same time period. 


--------------------
\11 An April 1976 letter from the Comptroller General to the Chairman
of the House Committee on the District of Columbia, commenting on an
earlier bill (H.R.  12441), estimated that in fiscal year 1975 the
federal government subsidized the District by more than $55 million
for those District employees covered under CSRS.  This was money that
the District would have had to fund annually from its own budget,
absent the federal contribution. 


   FUNDING COMPROMISES LED TO
   ENACTMENT OF LEGISLATION
---------------------------------------------------------- Chapter 2:5

Following the veto, the Congress addressed the pension plans' funding
issue again in 1979.  The House and Senate agreed to S.  1037, which
represented a compromise between the Senate's provisions for fully
amortizing the federal share and the House's partial amortization
provisions.  The Senate bill provided for funds to cover the unfunded
liability for all retirements--service and disability--before Home
Rule; the House bill provided funds for 75 percent of the unfunded
liability for service retirements and 33-1/3 percent of the unfunded
liability for disability retirements before Home Rule. 

In November 1979, S.  1037, the District of Columbia Retirement
Reform Act of 1979, was signed into law.  The act notes that the
retirement benefits--which Congress had authorized for the police
officers, firefighters, teachers, and judges of the District of
Columbia--had not been financed on an actuarially sound basis. 
Neither federal payments to the District nor District payments for
pensions had taken into account the long-term financial requirements
of these retirement plans.  Consequently, the act established for the
first time separate retirement funds for (1) police officers and
firefighters, (2) teachers, and (3) judges.  The act also established
a retirement board to manage the funds, required that the funds be
managed on an actuarially sound basis, and provided federal
contributions to these funds to partially finance the liability for
retirement benefits incurred before January 2, 1975, the effective
date of Home Rule.  At that time, the three plans had a total of
14,095 active participants and 7,657 retirees (see table 2.1). 



               Table 2.1

   Number of Active Participants and
      Retirees in the Three Plans

