Source: John G. Kilgour, Compensation & Benefits Review, OnlineFirst, Published July 19, 2019
From the https://doi.org/10.1177/0886368719864480:
Traditional employer-sponsored defined-benefit pension plans in the private sector that provided lifetime benefits have declined precipitously since 1985. They have been largely replaced by Section 401(k) plans in which investment control, market risk and longevity risk have been transferred from the employer to the participant. Most participants opted for the low-yielding money market plan default option, which proved inadequate for providing viable retirement income. The Pension Reform Act of 2006 made two important changes to 401(k) plans: (1) allowed automatic enrollment and (2) allowed target-date funds as a “qualified default investment alternative.” This article examines the evolution from defined-benefit pensions to target-date funds and the closely related collective investment trusts.
Source: S&P Global Ratings, July 11, 2019
The U.S. not-for-profit health care sector has benefited from an increase in the median funded status of its pension plans in fiscal 2018.
Source: Thomas Aaron, Marcia Van Wagner, Timothy Blake, Moody’s, Request for Comment, July 10, 2019
In this Request for Comment, we propose a number of changes to the Adjustments to US State and Local Government Reported Pension Data cross-sector rating methodology published in December 2017. Under our proposed changes, we would add descriptions of how we calculate the pension asset shock indicator and how we adjust other post-employment benefits (OPEB). The OPEB adjustment relies on information now required to be reported by issuers under Governmental Accounting Standards Board (GASB) Statements 74 and 75. We also propose to make some editorial changes to enhance readability.
Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, June 14, 2019
Many US states and local governments, though certainly not all, face heightened credit challenges stemming from exposure to pension obligations, resulting in a highly varied and complex landscape. The severity of public pension challenges can differ substantially between, and even within, states.
Unfunded liabilities in many cases have reached historic highs, rising costs increasingly pressure some budgets, and aging demographics leave government finances increasingly susceptible to pension asset volatility. Yet in some cases, low or declining levels of pension risk bolster the credit profile of a given state or local government.
Governments grappling with pension challenges must often navigate legal protections for employee benefits that can limit reform options. However, litigation on a variety of pension reforms continues to work its way through courts across the country, offering the potential for precedent-setting decisions.
This series provides a state-by-state, in-depth review of the key issues related to pensions facing state and local governments…..
Source: Matthew Butler, Moody’s, Issuer Comment, June 6, 2019
On May 29, the Kansas legislature voted to override several spending vetoes that Governor Laura Kelly made when she authorized the state’s fiscal 2020 budget. One of the vetoes was of a supplemental payment to the Kansas Public Employees Retirement System (KPERS). The lawmakers’ action preserves a $51 million supplemental contribution to KPERS, a credit positive for the state. At the same time, the legislature failed to override a veto of an income tax relief bill that would have cost the state an estimated $240 million over three years. This is also credit positive, because it reduces the amount of budget reserves Kansas will use to make the supplemental pension payment, increase school funding and more quickly retire an internal loan.
Source: S&P Global Ratings, May 14, 2019
– Illinois is considering consolidating numerous single-employer public safety plans as a possible remedy to its pension woes;
– While consolidation will likely lower long-term costs through the pooling of resources, we view these as benefits as marginal, and the current proposals leave major pension funding issues largely unaddressed;
– A proposal to reduce statutorily mandated funding to 80% from 90% and allow an additional 10 years to reach this goal would exacerbate existing pension funding weakness among these types of public safety pension plans.
Source: Diane Oakley, Ilana Boivie, National Institute on Retirement Security, Issue Brief, January 2019
From the abstract:
This study analyzes data on specific private sector pension plans (referred to as “multiemployer plans”) to assess the overall national economic impact of benefits paid by these plans to retirees.
We estimate the employment, output, value added, and tax impacts of pension benefit expenditures from multiemployer plans at the national level, and find that the economic gains attributable to private sector multiemployer DB pension expenditures are considerable.
In 2016, $41.8 billion in pension benefits were paid to 3.5 million retired Americans covered by multiemployer plans. The average benefit paid to retirees covered by these plans was $11,935 per year. Expenditures made out of those pension payments collectively supported:
– Nearly 543,000 American jobs that paid nearly $28 billion in labor income
– $89 billion in total economic output nationwide;
– $50 billion in value added (GDP); and
– $14.7 billion in federal, state, and local tax revenue.
The largest employment impacts occurred in the real estate, food services, health care, and retail trade sectors.
Source: Helen Cregger, Eric Hoffmann, Leonard Jones, Moody’s, Sector Comment, Public K-12 school districts and community colleges, May 22, 2019
On May 9, California Governor Gavin Newsom released a revised version of the state’s fiscal 2020 budget, which includes a substantial increase in minimum funding levels for K-12 public schools and community college districts, a credit positive. The new budget also benefits K-12 schools with the state agreeing to kick in added funds to help school districts with pension payments to the California State Teachers’ Retirement System….
Source: Matthew Butler, Joshua Grundleger, Emily RaimesMoody’s, Sector In-Depth, State government – US, April 9, 2019
Recent actions by states signal growing recognition that as pension burdens — unfunded liabilities and annual costs — escalate for K-12 school districts, state assistance will likely need to increase. California (Aa3 positive), Indiana (Aaa stable) and Oregon (Aa1 stable) all recently proposed budget legislation that would boost school funding by making increased payments to teacher pension plans on behalf of districts. The proposals call for one-time contributions to the pension plans rather than recurring pension contribution support on behalf of local districts like Colorado (Aa1 stable) and Michigan (Aa1 stable) have recently committed to provide. Additional states are likely to increase funding for teacher pensions,reflecting the growing credit risks underfunded plans present.
Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, April 11, 2019
Pensions and retiree healthcare pose a credit risk for some of the largest mass transit enterprises. Transit enterprises with material unfunded liabilities face budget challenges that can limit capital reinvestment, contribute to rising debt loads and/or lead to lower service levels.