Category Archives: Pensions

Views on the Value of Voluntary Workplace Benefits: Findings from the 2014 Health and Voluntary Workplace Benefits Survey

Source: Paul Fronstin, Ruth Helman, Employee Benefit Research Institute (EBRI), EBRI Notes, Vol. 35 No. 11, November 2014

From the abstract:
The Employee Benefit Research Institute (EBRI) has been conducting “value of benefits” surveys for 20 years to determine the relative importance of different benefits to workers and to assess the role played by benefits in job choice and job change over time. The surveys show consistency in the value of some benefits and substantial change on others. This paper examines public opinion surrounding voluntary workplace benefits. Data come from the 2014 EBRI/Greenwald & Associates Health and Voluntary Workplace Benefits Survey (WBS). Among other topics, the survey examines a broad spectrum of workplace benefits issues, with a particular focus on voluntary workplace benefits. Workers continue to rank health insurance as the first- or second-most important benefit provided by employers. Between 1999 and 2014, the percentage of workers ranking health insurance as the first- or second-most important benefit varied between 74 percent and 82 percent. While the ranking of a retirement savings plan fell from 2001 to 2014, this may be due to the introduction of additional benefits in the survey, such as paid time off. Three-quarters of workers state that the benefits package an employer offers prospective workers is extremely (32 percent) or very (44 percent) important in their decision to accept or reject a job. Nevertheless, 34 percent are only somewhat satisfied with the benefits offered by their current employer, and 22 percent are not satisfied. Eighty-six percent of workers report that employment-based health insurance is extremely or very important, far more than for any other workplace benefit. Workers identify lower cost (compared with purchasing benefits on their own) and choice as strong advantages of voluntary benefits. However, they are split with respect to their comfort in having their employer choose their benefits provider, and think the possibility that they may have to pay the full cost of any voluntary benefits is a strong or moderate disadvantage.

The PDF for the above title, published in the November 2014 issue of EBRI Notes, also contains the fulltext of another November 2014 EBRI Notes article abstracted on SSRN: “The Gap Between Expected and Actual Retirement: Evidence From Longitudinal Data.”

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.
press release

Lobbying Behavior of Governmental Entities: Evidence from Public Pension Accounting Rules

Source: Abigail M. Allen, Reining Petacchi, Harvard Business School Accounting & Management Unit Working Paper No. 15-043, November 30, 2014

From the abstract:
We examine the lobbying behavior of state governments in the development of recently issued public pension accounting standards GASB 67 and 68. Consistent with opportunistic motivations, we find that states’ opposition to the liability increasing provisions embedded in these standards is increasing in the severity of pension plan underfunding, state budget deficits, and the use of high discount rates. Further we find opposing states are subject to more stringent balanced budget requirements and greater political pressure from unions. By contrast, we find evidence that the support from financial statement users for these provisions is amplified in states with poorly funded plans and large budget deficits, suggesting government lobbying is misaligned with a public interest perspective. We also find evidence that user support varies by type: internal users (public employees) overwhelmingly oppose the standards, relative to external users (credit analysts and the broader citizenry) but the difference is moderated in states with constitutionally protected benefits. This finding is consistent with the expectation that pension accounting reform will motivate cuts in pension benefits as opposed to increased levels of funding from the governments. Analyses of 2011 and 2012 state pension reforms confirm that states opposed to accounting reform are more likely to cut pension benefits.

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….

Still a Better Bank for the Buck: Update on the Economic Efficiencies of Pensions

Source: William B. Fornia, Nari Rhee, National Institute on Retirement Security, December 2014

From the summary:
New research finds that pension plans are a far more cost-efficient means of providing retirement income as compared to individual defined contribution accounts.

The study calculates that the economic efficiencies embedded in defined benefit (DB) pensions enable these retirement plans to deliver the same retirement income at a 48% lower cost than 401(k)-type defined contribution (DC) accounts.

The new analysis finds that there are three unique drivers of the cost savings. More specifically, DB pensions:
– Pool the longevity risks of large numbers of individuals to provide Americans with stable income that won’t run out in retirement. Said another way, pensions only have to save for the average life expectancy of a group of individuals. Absent a group retirement plan, individuals must save enough on their own should they be among the half of retirees who will live longer than the average life expectancy. This DB pension longevity risk pooling feature generates a 10% cost savings.
– Are “ageless” and therefore can perpetually maintain an optimally balanced investment portfolio. In contrast, a typical individual investor must down shift investments over time to a lower risk portfolio of cash and bonds, sacrificing higher investment returns generated from stocks. This DB pension balanced portfolio feature generates an 11% cost savings.
– Achieve higher investment returns as compared to individual investors because they have lower fees and are managed by investment professionals. This lower fees and higher returns DB pension feature generates a 27% cost savings.

A Green Bond for Public Pensions

Source: Penelope Lemov, Governing, November 13, 2014

Pension plans want to support environmental projects, but there is one thing holding them back…. Girard Miller, chief investment officer of the Orange County Employees Retirement System (OCERS) noted that many pension plans are interested in investments that can boost funding for new infrastructure, especially when those projects are environmentally friendly. The problem, Miller said, is that pension investment officials “don’t want tax-exempt paper in their portfolios.”

Why? Since pension plans are already tax exempt, they can’t claim the tax exemption. That leaves, he says, “a mismatch between available pension capital and the public sector’s infrastructure financing needs, especially for projects that lack a revenue source.”

Is there a fix? Miller talked about one in a recent interview, which has been edited for clarity and length….

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.