Kommunsektorns pensionsskuld och pensionsförvaltning efter införandet av balanskrav och blandad redovisningsmodell

Two changes happened in 1998 that affect pension planning in a Swedish municipality. In the first place, there were changes in laws that affect accounting for pensions: Accrued pension rights that have been earned from 1998 have to be entered as a liability in the balance sheet. Pension rights that are earned in a given year must appear as a cost in the income statement, and similarly for interest cost relating to the pension debt. Also, the budget of a municipality has to balance. That is, budgeted revenues have to exceed budgeted costs. The result of these law changes is to necessitate a strengthening of municipal balance sheets. More precisely, municipalities are required to start funding the pensions of their employees, as pensions rights are earned. In the second place, a new pension agreement was signed between municipalities and labor unions representing municipal employees. This agreement, named PFA 98, is based on annual pension dues that accrue over time until retirement and are then transferred into a monthly pension amount, rather than on a specific pension promise that is given already at the time when the pension rights are earned. (That is, a pension promise is only given when an employee retires.) It is hence fairly simple to simulate the evolution of the municipal pension debt under the PFA 98 agreement. This report undertakes such a simulation. It shows annual forecasts for municipal pension debt, pension costs, and pension payments until 2043, for the total set of municipalities in Sweden. The report also investigates the consequences of the changes in laws mentioned earlier as regards the asset side of a municipal balance sheet. For instance, due to the manner in which the relevant laws are written, there may arise an overfunding of the pension debt. The report also includes a comparison with pension foundations in private companies (these are one particular manner, with some associated tax advantages, of managing a portfolio of assets acquired as pension debt funding). It is also argued that the strengthening of municipal balance sheets mentioned earlier will probably to a large extent take place through the reduction of external debt.