Category Archives: Pensions

America's Looming Pension Shock

Source: Mark Funkhouser, Governing, June 14, 2012

The poverty rate for people over age 65 dropped dramatically over the last several decades. Today it is the lowest of any age group, at about 9 percent. The aged vote, and so they drove the creation of a system of programs that lifted them out of poverty. That system has virtually disintegrated, but we have not yet felt the shock. We will….

And while many public-sector workers are seeing their pensions being cut back dramatically, about half of private-sector workers have no pension at all. Tens of thousands of older workers are taking Social Security early — foregoing a substantial portion of their maximum benefit — because they’ve lost their jobs and cannot find employment.

The net result of all this is a looming crisis for state and local governments, both because of the declines in tax revenue resulting from lower incomes as well as the fact that poor people put far more demands on government services than the non-poor. In addition, the creation of a vast new class of formerly middle-class, now poor, elderly will bring with it significant political and social instability.

Pension Benefit Guaranty Corporation (PBGC): A Fact Sheet

Source: John J. Topoleski, Congressional Research Service, 95-118, April 16, 2012

The Pension Benefit Guaranty Corporation (PBGC) is a federal government agency established in 1974 by the Employee Retirement Income Security Act (ERISA; P.L. 93-406). It was created to protect the pensions of participants and beneficiaries covered by private sector, defined benefit (DB) plans. These pension plans provide a specified monthly benefit at retirement, usually either a percentage of salary or a flat dollar amount multiplied by years of service. Defined contribution plans, such as §401(k) plans, are not insured. The PBGC is chaired by the Secretary of Labor, with the Secretaries of the Treasury and Commerce serving as board members.

The PBGC runs two distinct insurance programs for single-employer and multiemployer plans. Multiemployer plans are collectively bargained plans to which more than one company makes contributions. PBGC maintains separate reserve funds for each program. In FY2011, the PBGC insured about 27,066 DB pension plans covering 44.2 million people. The PBGC paid or owed benefits to 1.5 million people and took in 152 newly terminated pension plans. A firm must be in financial distress to end an underfunded plan. Most workers in single-employer plans taken over by PBGC receive the full benefit earned at the time of termination, but the ceiling on multiemployer plan benefits that could be guaranteed has left almost all of these retirees without full benefit protection.

State and Local Public Retirement Systems

Source: Jennifer Burnett, Council of State Governments, Capitol Facts and Figures, May 2012

From the summary:
In recent years, state policymakers have been bombarded with warnings about the sustainability of their public pension systems. A Pew Center on the States 2010 report warned that there was a $1 trillion gap between what states had set aside for pensions and the real price tag for those benefits. But after years of bad news, things are starting to look up. 2010 was the first year that public pension systems have shown positive earnings since 2007, just before financial markets – and public pension assets – took a dive. Those retirement systems saw a $722.2 billion loss in 2009 and a $178.8 billion loss in 2008.
See also:
Table: State and Local Public Employee Retirement Systems

NCPERS 2012 Public Fund Study

Source: National Conference on Public Employee Retirement Systems and Cobalt Community Research, 2012

In April and May 2012, the National Conference on Public Employee Retirement Systems (NCPERS) undertook the most comprehensive study to date addressing retirement issues for this segment of the public sector. In partnership with Cobalt Community Research, NCPERS has collected and analyzed the most current data available on member funds’ fiscal condition funds and steps they are taking to ensure fiscal and operational integrity.

The 2012 NCPERS Public Fund Study includes responses from 147 state and local government pension funds with a total number of active and retired memberships surpassing 7.5 million and assets exceeding 1.2 trillion. The majority – percent – were local pension funds, while 16 percent were state pension funds.

The study finds that public funds continue to respond to changes in the economic, political and social landscape by adopting substantial organizational and operational changes to ensure long‐term sustainability for their stakeholders. Efforts include increasing age and service requirements, increasing member contributions, stronger operational practices and more diligent oversight.

Is Retirement an Endangered Species?

Source: Jim McHale, Benefits Magazine, Vol. 49 no. 7, July 2012
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As employees increasingly bear all of the financial risks of retirement, their ability to retire – and not outlive their savings – is questionable. Through plan design, investment innovations, education and employment strategies, employers may be able to help employees moderate retirement risks.

Is The 401(k) Working?

Source: Tom Ashbrook, NPR, On Point, May 29, 2012

From the summary:
Is the 401(k) working as a retirement plan for the American public? A lot of account balances say maybe not.

Back in the day, the 401(k) – if you had one – was just a supplement to a good old-fashioned pension. An optional way to juice up your retirement. Today, for most Americans, pensions are history and the 401(k) is the main event, after Social Security. And 401(k)s are failing.

Millions of Americans are barreling toward 65-plus with very little in the sugar bowl. The stock market has tanked and tanked again and looks shaky right now. Most human nature may not be cut out for sophisticated investing. Is there a better way?

Teresa Ghilarducci, a labor economist and nationally-recognized expert in retirement security. She’s an economics professor at The New School.

David Wray, president of the Plan Sponsor Council of America, a national, non-profit association of companies that sponsor profit sharing and 401(k) plans.

ERISA Failures and the Erosion of Workers' Rights: The Urgent Need to Protect Private Practice & Public Workers' Pensions and Benefits

Source: James P. Allen, Jr. & Richard A. Bales, Albany Law Review, Volume 75 Issue 1, 2011/2012

On March 11, 2011, Governor Scott Walker of Wisconsin signed into law a bill that eliminated most collective bargaining rights for the state’s public-sector workers. Many other cash-strapped states followed Wisconsin’s lead and introduced or enacted similar restraints on the rights of their workers. Thousands of public workers, whose only means of protecting their rights rested in their ability to collectively bargain, suddenly found their retirement benefits in jeopardy. This truth highlighted the lack of protections for public worker benefits similar to those of the private sector. However, the Employee Retirement Income Security Act, enacted for that purpose, has failed to secure these benefits. This article seeks to provide a broad overview of the crisis facing the pension and benefits system in the United States and offers some possible solutions. More importantly, the goal is to spur discourse on the urgent need to protect the benefits of all workers, public and private.

Foreword: Lessons from Other Countries: Comparative Pension Law

Source: Paul M. Secunda, Comparative Labor Law & Policy Journal, Vol. 33, No. 1, 2011

From the abstract:
In 2008, in discussing issues of extraterritorial application of American employee benefits law, I wrote: “Global employee benefits law is an emerging field of study.” No longer is this the case. As the recent publication of a casebook on global employee benefit law, and now this series of comparative pension law papers, prove, this field of study is rapidly expanding. Conferences, lectures, and symposiums are being held not only in the United States, but across the globe concerning how to make employee benefits more secure through learning from the pension experiences of other countries.

In thinking about how to systematically study the field of global employee benefits law, many have maintained that we should consider the values that countries seek to promote in providing pension and other types of benefits to their citizens and employees. This “values perspective” emphasizes the values of responsibility, protection, solidarity, non-discrimination, and participation. The papers in this symposium by Professors Muir, Moore, and Davis consider the values that underlie pension systems in the United States, Canada, and Australia.

By considering these pension values, these papers help to explain not only why the recent global financial crisis adversely impacted so many countries’ pension systems, but also why some systems were better able to respond to the challenge posed by this crisis than others.

Articles include:
– An Overview of the U.S. Retirement Income Security System and the Principles and Values It Reflects by Kathy Moore
– Balancing Competence and Representation: Trustees and Fiduciaries in the Era of Financial Engineering by Ronald Davis
– Building value in the Australian defined contribution system : a values perspective by Dana M. Muir

The Funding of State and Local Pensions: 2011-2015

Source: Alicia H. Munnell, Jean-Pierre Aubry, Joshua Hurwitz, Madeline Medenica and Laura Quinby, Center for Retirement Research at Boston College, SLP#24, May 2012

From the summary:
The brief’s key findings are:
– During 2011, the funded status of public plans slipped from 76 percent to 75 percent.
– This decline reflected slow asset growth due to actuarial smoothing, which was partly mitigated by an unexpected reduction in liability growth.
– Going forward, the funded ratio is projected to remain steady next year and then gradually improve as the market meltdown is phased out of the calculations.