Category Archives: Benefits

Teacher Retirement Plans: Case Studies in Washington and Ohio Indicate Value of Pensions

Source: Diane Oakley and Ilana Boivie, National Institute on Retirement Security, Issue Brief, December 2014

From the summary:
An issue brief finds that teachers prefer a stand-alone defined benefit pension when given a choice between a pension plan or a plan that combines a defined contribution account with a pension.

This new research brief examines the experience in the only two states that have offered a defined benefit (DB) and defined contribution (DC) combination choice – Washington and Ohio. The research offers three key findings:
1. The teacher retirement plan election pattern during 1997 in Washington is unique. The combined DB-DC plan offered by the state included special features and circumstances that enticed teachers to switch:
– Teachers were provided with an upfront financial payments in 1997 that encouraged the switch;
– Stock market conditions with double-digit gains in the 1980s and 1990s may have caused teachers to overestimate the future value of their DC accounts. Thus, the combined DB-DC plan appeared more attractive in 1997; and
– The state offered important features such as in-plan annuitization of a teacher’s DC account balance, so he or she would receive guaranteed lifetime income with the state reassuming the longevity risk. In fact, this ability provides teachers with a significantly larger lifetime income than available today from annuities from insurance companies.

2. Ohio had a far different outcome than Washington over the years when teachers could choose between the DB plan and the DB-DC combination plan. Between 2002-2014, 86% of new teachers opted to join the traditional DB plan and only four percent opted for the combined plan. The remaining 10% chose the DC plan, the third option available in Ohio.

3. Education policy research finds that DB pensions play a critical role in recruiting and retaining qualified, productive teachers. Thus, offering an alternative retirement plan design could have adverse effects on teacher retention and quality.
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The Long Reach of Education: Early Retirement

Source: Steven F. Venti, David A. Wise, National Bureau of Economic Research (NBER), NBER Working Paper No. w20740, December 2014
(subscription required)

From the abstract:
The goal of this paper is to draw attention to the long lasting effect of education on economic outcomes. We use the relationship between education and two routes to early retirement – the receipt of Social Security Disability Insurance (DI) and the early claiming of Social Security retirement benefits – to illustrate the long-lasting influence of education. We find that for both men and women with less than a high school degree the median DI participation rate is 6.6 times the participation rate for those with a college degree or more. Similarly, men and women with less than a high school education are over 25 percentage points more likely to claim Social Security benefits early than those with a college degree or more. We focus on four critical “pathways” through which education may indirectly influence early retirement – health, employment, earnings, and the accumulation of assets. We find that for women health is the dominant pathway through which education influences DI participation. For men, the health, earnings, and wealth pathways are of roughly equal magnitude. For both men and women the principal channel through which education influences early Social Security claiming decisions is the earnings pathway. We also consider the direct effect of education that does not operate through these pathways. The direct effect of education is much greater for early claiming of Social Security benefits than for DI participation, accounting for 72 percent of the effect of education for men and 67 percent for women. For women the direct effect of education on DI participation is not statistically significant, suggesting that the total effect may be through the four pathways.

NRRI Update Shows Half Still Falling Short

Source: Alicia H. Munnell, Wenliang Hou and Anthony Webb, Center for Retirement Research at Boston College (CRR), IB#14-20, December 2014

The brief’s key findings are:
Between 2010 and 2013, the National Retirement Risk Index improved only slightly, dropping from 53 percent to 52 percent of working-age households.
This result may seem surprising given that the stock market was up and housing prices had begun to rebound.
But other factors ­– Social Security’s rising “Full Retirement Age,” declining interest rates, and changes in reverse mortgage rules – acted as counterweights.
The bottom line is that retirement security remains a serious challenge; Americans need to save more and/or work longer.

Spotlight on Retiree Health Care Benefits for State and Local Employees in 2014

Source: Joshua Franzel and Alex Brown, National Association of State Retirement Administrators (NASRA) and the Center for State and Local Government Excellence (SLGE), December 2014

From the summary:
An overview of the health care and other postemployment benefits state and local governments provide for their retired employees and how they pay for them.

Key findings:
– For most employees who retire from state (or covered local) government service, this coverage continues into retirement.
– The style and size of coverage varies and state and local government retiree health programs do not have a uniform design.
– Different plan designs, coverage levels, and financing arrangements produce different costs for sponsoring state governments.
– States vary in how they approach financing retiree health benefits, with some prefunding future benefit obligations while others pay for the associated costs annually as part of the state operating budget.
– The value of assets states hold in trust varies significantly.

This brief updates finance data on health care and other postemployment benefits (or OPEB) provided to general state employees featured in the 2013 report. The update also expands data to include additional state and local government employee cohorts including teachers, public safety officers, university employees, and legislators, among others.

Building Bulwarks Against the Breakdown of Retirement Benefits for Public Sector Employees

Source: Amanda Cuda, HR News, Vol. 80 no. 11, November 2014
(scroll down) (subscription required)

….Recognizing that cutting subsidies and payments cannot stand as the only way to address pension problems without risking employees’ financial security, some public sector organizations are looking at innovative ways to lessen their spending….

Local Government Strategies to Address Rising Health Care Costs

Source: Elizabeth Kellar, Christine Becker, Christina Barberot, Ellen Bayer, Enid Beaumont, Bonnie Faulk, Joshua Franzel, Mark Ossolinski, and Danielle Miller Wagner, Center for State and Local Government Excellence (SLGE) and University of Tennessee, December 2014

From the abstract:
Rising costs over the last decade have prompted many local governments to make changes to their health plans and strategies. Cost sharing, wellness program, and disease management initiatives are widely reported. Other changes cited include increased reliance on high-deductible plans, dependent eligibility audits, and altering retiree benefits.

Key findings:
– The top cost drivers of local government health care increases were increased claim costs (64 percent); prescription drugs (57 percent); an aging workforce (46 percent); insurance company price increases (45 percent) and federal health care policy (45 percent).
– Fifty-seven (57) percent of respondents increased cost sharing of premiums paid by employees and nearly half of respondents reported that their local governments changed the way health insurance is provided.
– Nineteen (19) percent of those reporting health plan changes shifted employees to a high-deductible plan with a health savings account and 14 percent established a health reimbursement arrangement.
– Disease management programs, on-site clinics, dependent eligibility audits, and regular review and rebidding of health care vendor contracts have achieved significant savings.
– Respondents reported that providing easy access to health services at work sites not only supports employee wellness, but also reduces employee absenteeism and health care costs.

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward

Source: University of Pennsylvania, Institute for Urban Research, November 11, 2014

On Nov. 11, Penn IUR hosted a dynamic discussion with leading practitioners and researchers on the complex fiscal issues facing cities, focusing on the legacy issues of the funding of pensions, and looking forward to strategies that support financial sustainability.

Speakers included Robert Inman, Richard King Mellon Professor of Finance, Professor of Business Economics & Public Policy, Professor of Real Estate, The Wharton School, University of Pennsylvania; Mathew McCubbins, Professor of Law and Political Science, Duke Law; Amy Monahan, Julius E. Davis Professor of Law, University of Minnesota Law School; Joshua Rauh, Professor of Finance, Stanford Graduate School of Business and Senior Fellow, Hoover Institution, Stanford University; Richard Ravitch, former Lieutenant Governor of New York; and James Spiotto, Managing Director, Chapman Strategic Advisors LLC; and Marcia Van Wagner, Vice President/Senior Credit Office, States Team, Moody’s Investors Service. Panels will be moderated by Olivia Mitchell, Professor of Business Economics and Public Policy and Executive Director of the Pension Research Council, The Wharton School; and Robin Prunty, Managing Director, Standard & Poor’s Public Finance Ratings. This event was co-sponsored by Next City and made possible with support from Melanie and Lawrence C. Nussdorf. …

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward (Part 1)

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward (Part 2)

Retirement Benefit Decisions by City and County Governments

Source: Robert L. Clark, Melinda Sandler Morrill, Matthew Anderson, and Aditi Pathak, Center for State and Local Government Excellence, Issue Brief, November 2014

From the summary:
This brief is the second of a three-part series that analyzes employee participation in primary and supplemental retirement plans, retiree health care benefits, and Social Security in 20 large cities and counties across the country.

· Workers who work a full career in their city or county can expect a retirement income of between 45 and 80 percent of their pre-retirement income.
· Career employees of local governments who participate in Social Security can expect retirement income replacement rates of 20 to 30 percentage points higher than employees whose governments do not participate in Social Security.
· These and other variations mean that many local workers will need to be disciplined about participating in savings plans, outside of their primary plans, to meet their retirement security goals.