Warnings of looming pension bankruptcy aren’t just overblown. They’re politically dangerous.
From the summary:
A new case study examines the impacts of the actions of the Town of Palm Beach when substantial changes were made to the retirement plans offered to the town’s employees. The case study details the 2012 decision by the Palm Beach Town Council to close its existing defined benefit (DB) pension systems for its employees, including police officers and firefighters. Retirement Reform Lessons: The Experience of Palm Beach Public Safety Pensions outlines how the “combined” retirement plans offered dramatically lower DB pension benefits and new individual 401(k)-style defined contribution (DC) retirement accounts. Following a large, swift exodus of public safety employees to neighboring employers that increased costs in human resource areas, the town reconsidered the changes. In 2016, the Town Council voted to abandon the DC plans and to improve the pension plan.
….Tomorrow’s blue-collar jobs will be largely in services.
That means the good jobs of the future are going to look rather different from those of the past. What we mean by “good” is well understood: The jobs provide a decent living. But we’ve come to realize that a decent living in the new economy entails more than a generous wage; it involves sharing the company’s success with employees. It’s also about more than money: People want to learn new skills and to understand how their work contributes to that success. Those insights have generally taken hold in high-end, knowledge-work settings. But a healthy free-enterprise society must offer promising employment opportunities for all its citizens, not just the well educated and highly skilled—and that means figuring out how to make blue-collar jobs more engaging as well as better paid. Otherwise the toxic combination of anger, demoralization, and cynicism that we already see among many Americans will spread.
So what should blue-collar jobs in the 21st century look like? Let’s begin by considering compensation. Arguably, we’ve already figured out that we ought to change the way we pay—even if relatively few companies are doing so yet. But as we’ll see, no benefits of progress on compensation will be fully realized or sustained unless we also make blue-collar jobs more engaging. In this respect, much remains to be done…..
While many current retirees are reasonably comfortable because they have pensions, the future does not look bright for those yet to retire.
Traditional defined-benefit pensions are rapidly disappearing in the private sector—less than 15 percent of workers have them. Most public sector workers still have them—more than 20 million are either now receiving or looking forward to a pension. However, public sector pensions are coming under attack from the American Legislative Exchange Council (ALEC) and other right-wing groups.
Over the last four decades employers have been anxious to convert the traditional defined-benefit pensions into defined-contribution 401(k) plans.
The difference is that with a defined benefit, the worker is secure while the employer does not know exactly how much it will have to pay in. Workers are guaranteed a lifetime benefit based on their salary and years of service; the employer’s bill depends on the worker’s longevity and on stock market performance.
With a defined-contribution plan, the employer knows just how much it will pay each year, and the worker shoulders all the uncertainty. This means that workers face the risk that the market will plunge just after they retire—and they may quite possibly outlive their savings.
By getting rid of defined-benefit plans, employers are transferring risk to workers. In addition, they often contribute less to a defined-contribution plan than to the defined-benefit plans they replaced, in effect cutting workers’ pay. ….
Workplace wellness programs have two main goals: improve employees’ health and lower their employers’ health-care costs. They’re not very good at either, new research finds.
What Do Workplace Wellness Programs Do? Evidence from the Illinois Workplace Wellness Study
Source: Damon Jones, David Molitor, Julian Reif, National Bureau of Economic Research, NBER Working Paper No. 24229, January 2018
From the abstract:
Workplace wellness programs cover over 50 million workers and are intended to reduce medical spending, increase productivity, and improve well-being. Yet, limited evidence exists to support these claims. We designed and implemented a comprehensive workplace wellness program for a large employer with over 12,000 employees, and randomly assigned program eligibility and financial incentives at the individual level. Over 56 percent of eligible (treatment group) employees participated in the program. We find strong patterns of selection: during the year prior to the intervention, program participants had lower medical expenditures and healthier behaviors than non-participants. However, we do not find significant causal effects of treatment on total medical expenditures, health behaviors, employee productivity, or self-reported health status in the first year. Our 95% confidence intervals rule out 78 percent of previous estimates on medical spending and absenteeism. Our selection results suggest these programs may act as a screening mechanism: even in the absence of any direct savings, differential recruitment or retention of lower-cost participants could result in net savings for employers.
Source: Joshua J. Waldbeser and Heather B. Abrigo, Journal of Pension Benefits, Vol. 25, No. 1, Autumn 2017
This article examines the requirements and standards of conduct associated with social investments in ERISA plans with an emphasis toward reducing risks and protecting participants’ interests.
Source: Moody’s, Sector In-Depth, December 19, 2017
Retiree health benefits vary considerably among states. Despite generally greater legal flexibility to change these benefits compared to pensions, large liabilities and significant costs persist for some state employers who offer generous benefits. We do not expect new accounting rules to have a material impact on costs, but the new rules will facilitate probing credit risk, especially important for those issuers whose retiree benefits have stronger legal protections.
Source: Moody’s, December 19, 2017
This cross-sector rating methodology replaces the Adjustments to US State and Local Government Reported Pension Data methodology published in April 2013. We have updated the description of our standard balance sheet adjustment and included a description of our standard income statement adjustment. Both of these reflect the implementation of Governmental Accounting Standards Board Statement 68 accounting standards, which requires adjustments that were not previously necessary. We have retired the concept of amortizing adjusted net pension liabilities on a level dollar basis over 20 years, a cost metric not included in any scorecards of primary rating methodologies. We have also added a description of how we calculate the “tread water” indicator….
Source: Moody’s, Sector In-Depth, December 14, 2017
Adjusted net pension liabilities (ANPLs) rose in fiscal 2016 for 42 of the 50 largest local governments, ranked by debt outstanding. Pension pressures will remain elevated due to coming ANPL spikes in 2017, even with moderate declines expected to follow in fiscal 2018. Most governments are contributing insufficient amounts to contain growth in net liabilities, and some are exposed to sizeable investment losses in the event of a market downturn. Retiree healthcare and other post-employment benefit (OPEB) liabilities are also significant for a handful of governments, and will likely increase due to lower discount rates under new accounting….
From the summary:
This issue brief examines whether state and local borrowing costs have become more sensitive to pensions since the financial crisis.
The brief’s key findings include:
Rating agencies have begun to explicitly account for pensions in their methodologies;
Several governments have experienced downgrades attributable, in part, to their pension challenges;
Pension funded status can have a meaningful impact on the borrowing costs for a municipality; and
Adequate funding, monitoring, and management of public pensions should be an important component of state and local governments’ fiscal management.