Category Archives: Pensions

Asset Growth Trend Continues in Fourth Quarter 2017: Q4

Source: Melinda Caskey, Deron Pope, and Gritiya Tanner, U.S. Census Bureau, Report Number: G17-QSPP4, March 2018

For the 100 largest public-employee pension systems in the country, assets (cash and investments) totaled $3,785.9 billion in the fourth quarter of 2017, increasing by 2.7 percent from the 2017 third quarter level of $3,684.7 billion. Compared to the same quarter in 2016, assets for these major public-pension systems increased 11.6 percent from $3,392.1 billion. The main driver of this gain is earnings on investments, which totaled $142.2 billion during the fourth quarter of 2017. Earnings on investments make up for the deficit between contributions and benefits paid out, and are a critical contributor to the sustainability of pension plans (see Figure 1). The summary highlights the major asset categories (equities, debt instruments, and cash equivalents) and does not reflect all of the categories published for the Quarterly Survey of Public Pensions.
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Retirement Planning Decisions: Choices Between Defined Benefit and Defined Contribution Plans

Source: Susannah Bruns Ali, Howard A. Frank, The American Review of Public Administration, OnlineFirst, Published April 12, 2018
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From the abstract:
As states move toward offering defined contribution retirement plans as an alternative or addition to traditional defined benefit pensions, they need to consider the preferences and long-term consequences for different groups of employees. This study looks at which plan employees choose when given the option of either a defined contribution or defined benefit plan. The strongest driver of that choice is education level where the most educated prefer defined contribution plans and the least educated stay in defined benefit plans. A unique contribution of this study is that we include region of origin as a study and determine that cultural differences influence plan selection. The study also explores the role of sex, age, and tenure. Challenging other studies on financial planning, these findings indicate that sex and age are not significant factors. This research was conducted using data from more than 4,000 employees from Florida International University and an interview with HR professionals. By understanding retirement preferences in a more nuanced way, we can better craft our approaches to retirement security and financial literacy training in public sector organizations.

Understanding Decisions in State Pension Systems: A System Framework

Source: Gang Chen, The American Review of Public Administration, Vol. 48 no. 3, April 2018
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From the abstract:
State governments establish pension systems to provide retirement benefits to public employees. State governments as sponsors, state legislatures as policy makers, and public-sector unions as representatives of public employees may exert considerable influence over the decisions made in pension systems. This study applies a system framework to examine these influences. It focuses on four decisions in pension systems: benefits, employer contributions, employee contributions, and the asset smoothing period. The findings show that changes in the short- and long-term financial conditions of a state government have different influences on pension decisions, and that legislatures and public employee unions play important roles that affect these decisions.

The Funded Status of Local Pensions Inches Closer to States

Source: Jean-Pierre Aubry, Caroline V. Crawford and Alicia H. Munnell, Center for Retirement Research at Boston College, SLP#58, January 2018

The brief’s key findings are:
– Since 2001, the aggregate funded status of local pension plans has lagged behind that of state plans, but the gap has been closing recently for two reasons.
– First, local plans continue to receive more of their required contributions than state plans and are a bit more likely to use stringent funding methods.
-Second, in recent years, local plans have earned stronger investment returns than state plans, perhaps partly due to a lower allocation to alternative investments.
– Despite this progress, many local plans – like their state counterparts – still face significant funding challenges.

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Detroit’s bond redemption a credit positive step toward addressing rising fixed costs

Source: David Levett, Rachel Cortez, Alexandra S. Parker, Moody’s, Issuer Comment, March 21, 2018
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The retirement of $52 million of principal and $2 million of interest on its financial recovery bonds is the latest example of the city’s effort to strengthen its financial position as it prepares for a $140 million increase in pension contributions in fiscal 2024.

U.S. tax law fuels changes to employee benefit and compensation programs

Source: Willis Towers Watson, February 21, 2018

Willis Towers Watson’s recent pulse survey on impacts from the new tax law reveals that the most common changes organizations have made or are planning or considering include expanding personal financial planning, increasing 401(k) contributions, and increasing or accelerating pension plan contributions. Other potential changes include increasing the employer health care subsidy, reducing or holding flat the employee payroll deduction, or adding a new paid family leave program in accordance with the Family Medical and Leave Act’s tax credit available for paid leave for certain employees.

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Milliman Analysis: Public pension funded ratio surges to 73.1% in Q4

Source: Rebecca A. Sielman, Milliman, February 2018

From the summary:
In the fourth quarter, there was a $60 billion improvement in the estimated funded status of the 100 largest U.S. public pension plans as measured by the Milliman 100 Public Pension Funding Index. From the end of September through the end of December, the deficit shrank from $1.392 trillion to $1.332 trillion. As of December 31, the funded ratio stood at 73.1%, up significantly from 71.6% at the end of September.

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Milliman analysis: Corporate pensions’ $61 billion funding gain in January may cushion early February market slide
Source: Charles J. Clark, Zorast Wadia, Milliman, February 2018

From the summary:
In January, the funded status of the 100 largest corporate defined benefit pension plans improved by $61 billion as measured by the Milliman 100 Pension Funding Index (PFI). As of January 31, the funded status deficit narrowed to $221 billion due to investment and liability gains incurred during January. As of January 31, the funded ratio rose to 87.2%, up from 84.1% at the end of December. January’s impressive funded status improvement was greater than that seen in any of the prior months of 2017.

The market value of assets grew by $13 billion as a result of January’s investment gain of 1.20%. The Milliman 100 PFI asset value increased to $1.505 trillion from $1.492 trillion at the end of December. The projected benefit obligation decreased to $1.725 trillion at the end of January.

Over the last 12 months (February 2017-January 2018), the cumulative asset returns for these pensions has been 11.88% and the Milliman 100 PFI funded status deficit only improved by $50 billion. The funded ratio of the Milliman 100 companies has increased over the past 12 months to 87.2% from 83.8%.