Category Archives: Pensions

Employee Benefits: Today, Tomorrow, and Yesterday

Source: Nevin Adams and Dallas Salisbury, Employee Benefit Research Institute, Issue Brief, no. 401, July 2014

From the summary:
In 2013, the nonpartisan Employee Benefit Research Institute (EBRI) commemorated its 35th anniversary. While much has changed with health and retirement benefits during the past three decades—the first generation of the Employee Retirement Income Security Act (ERISA)—many of the issues that were present at EBRI’s beginning remain today.

But even if core issues endure, the historic shift away from “traditional” defined benefit pension plans and toward 401(k)-type defined contribution retirement plans, along with the recent enactment of the Patient Protection and Affordable Care Act of 2010 (PPACA), and the demographic shifts attendant with the retirement of the Baby Boomers and the workplace ascendency of the Generation X and Millennial cohorts, employee benefits are certain to continue to change and evolve in the future.
Each year EBRI holds two policy forums which bring together a cross-section of national experts in the benefits field, congressional and executive branch staff, and representatives from academia, interest groups, and labor to examine public policy issues affecting health and retirement benefits.

This Issue Brief summarizes the presentations and discussions at EBRI’s 73rd policy forum held in Washington, DC, on Dec. 12, 2013. Titled “Employee Benefits: Today, Tomorrow and Yesterday,” the symposium offered expert perspectives on not only the workplace and work force of the past, but the challenges of today’s multi-generational workplace, and the difficulties and opportunities that lie ahead. Following a review of the benefits landscape by EBRI’s research team, panels discussed:
• 1978 to 2013: The Changing Role of Employers in Employee Benefits.
• Employee Benefits from 2013 to 2048: The Road to Tomorrow.
• 2013 to 2048: Work Force Trends and Preferences, Today and Tomorrow.

2013 Annual Survey of Public Pensions: State-Administered Defined Benefit Data

Source: U.S. Census Bureau, August 26, 2014

From the tip sheet:
This provides a comprehensive look at the financial activity of the nation’s state-administered defined benefit pension systems, including cash and investment holdings, receipts, payments, pension obligations and membership information. Statistics are shown at the national level and for individual states. The total cash and investment holdings of the nation’s state-administered defined benefit pensions systems totaled $2.7 trillion in 2013. By comparison, total cash and investment holdings totaled $2.5 trillion in 2012, yielding a 7.8 percent increase from 2012 to 2013.
All Data of State Pension Systems

2014 Retirement Confidence Survey of the State and Local Government Workforce

Source: Paul J. Yakoboski, Joshua M. Franzel, Center for State and Local Government Excellence and TIAA-CREF Institute, August 2014

From the summary:
This report analyzes data from a recent survey initiative that examined the employment and retirement planning and saving experiences of state and local government workers, as well as their confidence in their retirement income prospects.

Highlights from the report include the following:
– Virtually all full-time state and local workers are covered by some form of retirement plan offered by their employer, but only 39 percent are very confident that they will receive all of the benefits that they have earned in retirement.
– In comparison to 2012, when 72 percent of respondents expected to work for pay after retiring, the figure has dropped to 49 percent in 2014.
– While 2014 confidence levels in overall retirement income prospects are generally consistent with 2012 (18 percent are very confident and 56 percent somewhat confident), there was a decrease in the proportion of public-sector employees who are either very confident or not at all confident. This year’s survey also revealed a 7 percentage-point shift of K-12 teachers from very confident to somewhat confident about their retirement income prospects.
– Public-sector workers are concerned about federal retirement income security programs. Only 7 percent of state and local government employees are very confident that the Social Security system will continue to provide benefits of at least equal value to the benefits received by retirees today, while 55 percent are not confident. The same goes for Medicare benefits, with 6 percent reporting they are very confident and 52 percent saying they are not confident.
– In 2012, 51 percent of retirement savers in the public-sector workforce said they received retirement planning advice from a professional financial advisor within the past three years. In 2014, only 38 percent reported receiving advice. But this year’s report suggests more individuals are following all the investment advice they receive. For example, 24 percent reported following all the investment advice received in 2014 vs. 18 percent in 2012.

Size of Long-term Obligations Varies Across States

Source: Sarah Babbage and Kil Huh, Pew Charitable Trusts, Fiscal 50, August 19, 2014

States commit to future spending both when they borrow and when they fall short of funding the cost of retirement benefits for their public employees. As of fiscal year 2012, the largest of these long-term obligations was unfunded pension liabilities in 35 states, unfunded retiree health care costs in seven states, and public debt in eight states.

States pass balanced budgets each year, but some spending commitments that will not come due for years go unpaid. A snapshot of debt and unfunded retirement costs in fiscal 2012 shows totals of $915 billion in unfunded pension benefits, $757 billion in outstanding public debt, and $577 billion in unfunded retiree health care and other nonpension benefits.

States take on these obligations, which are paid over decades, for different reasons. Sometimes a state borrows to build infrastructure projects that deliver services for years in the future and may spur economic growth. When the bill comes due, states usually cover these debt obligations before other expenses. In other instances, a state creates unfunded liabilities when it sets aside less than is needed to cover the full retirement costs for public services already performed, shifting those expenses to future taxpayers. …

Why there’s global urgency to enhance pensions

Source: Adam Mayer, Toronto Star, August 17 2014

As Ontario gets going on its supplementary pension plan, Britain has already launched one and the U.S. has one under consideration. … South of the border, a proposal that would supplement U.S. Social Security was laid out by Iowa Senator Tom Harkin in February and is in the early stages of debate. Harkin’s plan would cover 75 million Americans without any pension at all. … Harkin’s plan would be mandatory for companies with more than 10 people. Both employees and employers would contribute and the money could be directed into one of several privately run funds. …

how top up pension plans compare

Harkin Unveils Legislation to Address Retirement Crisis, Rebuild Private Pension System
Source: Senator Harkin, Press Release, January 30, 2014

Harkin, Chair of Senate Pensions Committee, Proposes “Universal, Secure, Adaptable (USA) Retirement Funds Act” to Expand Access to Privately-Run, Portable Retirement Plans

Harkin’s legislation would create a new type of privately-run retirement plan that combines the advantages of traditional pensions—including lifetime income benefits and pooled, professional management—with the portability and ease for employers of a 401(k). The key features of USA Retirement Funds include:
∙ Universal Coverage: USA Retirement Funds would be available to everyone, including the more than 61 million people without access to a workplace retirement plan and the 14.5 million people who are self-employed.
∙ Automatic Enrollment: Employees would be automatically enrolled at a rate of 6 percent per year, but could choose to raise, lower, or stop their contributions.
∙ Secure Lifetime Income: Benefits would be paid monthly for life, and participants would be shielded from market volatility and other risks.
∙ Lower Costs: Pooled, professional management and risk sharing will reduce the cost of retirement by up to 50 percent.
∙ Portability: People would be able to take their benefit with them as they change employers.
∙ Simple and Easy for Businesses: Small businesses can easily participate and would not have to take on risk or undue administrative burden.

Bill snapshot

Defined Benefit vs. Defined Contribution — the Continuing Challenge of State Pensions

Source: Mary Branham, Council of State Governments, e-newsletter, no. 142, August 14, 2014

While public pension plans still face problems, the situation isn’t as bleak as the headlines report, according to Dana Bilyeu, executive director of the National Association of State Retirement Administrators. In fact, public pension plans across the country are 80 percent funded, on aggregate; that’s down from 101 percent funded in 2001, Bilyeu said. … In addition, she said, about 87 percent of the public pension plans—covering state and local governments, as well as teachers, police and firefighters—make their annual required contribution, or ARC. Popular media, she said, focus on the plans in distress. …

…Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems, said defined benefit plans are definitely sustainable if:
Sponsors make contributions consistently and fully;
Employees make their contributions;
Investments are well managed and have low fees; and
Benefits are appropriate and funded…..
Employees Need to be Involved in Pension Changes
Source: Mary Branham, Council of State Governments, e-newsletter, no. 142, August 14, 2014

An Empirical Analysis of State and Local Public Pension Plan Funded Ratio Change, 2001-2009

Source: Qiushi Wang, Jun Peng, The American Review of Public Administration, Published online before print July 24, 2014

From the abstract:
Between 2001 and 2009, all public pension plans suffered losses and saw a drop in their funded ratios. However, some plans saw a much smaller decline than others. In this study, we explore why the ratios fared so differently during this tumultuous period for pension plans. By examining the changes in funded ratio for 84 large public pension plans, we find that the differences can be mostly attributed to variations in annualized investment return and changes in investment return assumption, and to a lesser extent, to the required contributions paid by employers, the contribution rates of employees, and cost-of-living adjustment provisions. The results suggest that pension plans seeking to improve their funded ratios may need to revise their investment strategies, pay a higher percentage of their required contribution, require employees to pay more toward their pension benefit, and limit the use of automatic or consumer price index–linked cost-of-living adjustments.

Quarterly Survey of Public Pensions for 2014: 1st Quarter

Source: U.S. Census Bureau, June 26, 2014

This quarterly survey provides national summary statistics on the revenues, expenditures and composition of assets of the 100 largest state and local public employee retirement systems in the United States. These 100 systems comprise 89.4 percent of financial activity among such entities, based on the 2007 Census of Governments. This survey presents the most current statistics about investment decisions by state and local public employee retirement systems, which are among the largest types of institutional investors in the U.S. financial markets. These statistical tables are published three months after each calendar quarter and show national financial transactions and trends for the past five years.

For the 100 largest public-employee pension systems in the country, cash and security holdings totaled
$3,218.2 billion in the first quarter of 2014, reaching the highest level since the survey began collecting data in 1968. Cash and security holdings had a quarter-to-quarter increase of 0.5 percent, from $3,200.8 billion last quarter, and a year-to-year increase of 9.4 percent, from $2,941.2 billion in the first quarter of 2013. (Refer to Figure 1.) Earnings on investments totaled $73.2 billion in the first quarter of 2014….
Cash and Security Holdings of Major Public Employee Retirement Systems
Earnings on Investments, Contributions, and Payments of Major Public Employee Retirement Systems
Percent Distribution of the Cash and Security Holdings of Major Public Employee Retirement Systems
Time Series/Trend Charts