Category Archives: Pensions

The Forgotten Employee Benefit Crisis: Multiemployer Benefit Plans On The Brink

Source: Paul M. Secunda, Cornell Journal of Law and Public Policy, Volume 21 Number 1, Fall 2011

This Article provides a first time look at the numerous challenges facing multiemployer or Taft-Hartley benefit plans in the post-global recession and health care reform world. These plans have provided pension, health, and welfare benefits to union members of smaller employers in itinerant industries for over sixty years and even today these plans collectively have over 10 million participants in over 1,500 plans.

Multiemployer plans are increasingly mired in financial trouble and are finding it more difficult to continue providing adequate retirement and health benefits to their members. Although they once represented one of the great triumphs in American labor relations, these plans are now becoming just another part of the growing employee benefits crisis confronting the United States.

The purpose of this Article is to consider, and respond to, the various financial, healthcare, and judicial challenges that threaten the ongoing viability of these plans. By addressing these challenges in a systematic manner, this Article seeks to provide a more sustainable path forward so that multiemployer benefit plans can continue to provide crucial employee benefits to the next generation of union workers.

Too Big to Fail and Too Big to Pay: States, Their Public-Pension Bills, and the Constitution

Source: Debra Brubaker Burns, Hastings Constitutional Law Quarterly, Fall 2011
(subscription required)

Faced with the most severe budget crises since the Great Depression, many state officials and lawmakers within the United States are desperately trying to pay their bills and balance their budgets. More than a few economists, reporters, academicians, lawyers, and politicians are arguing about legal solutions for pension liabilities that are too big to pay, including possible federal bailouts for states that are deemed “too big to fail.”

States choosing to default on or repudiate any public-pension obligation would face significant legal challenges to any action that impaired those pensions. Beyond the protections of the Constitution’s Contract Clause, state constitutional and statutory laws often provide additional legal protections against unilateral reduction of pension benefits.

This note analyzes two proposed solutions to the states’ expanding pension liabilities. The first is tax-exempt and conditional pension obligation bonds. The second is a newly instituted bankruptcy code for states. Because courts have recognized Congress’s broad discretion in its spending, conditional debt obligations for state pensions would likely survive a constitutional challenge. Bankruptcy for states, however, would face many more legal, practical, and political challenges. Arguably the Bankruptcy Clause of the Constitution is worded broadly enough to allow voluntary bankruptcy for states, and would preempt contradictory state law under the Supremacy Clause. Yet, even if Congress were to establish a new chapter of bankruptcy for states and the Supreme Court found it constitutional, states may in the end determine that on a practical level declaring bankruptcy creates more social, political, and other economic problems than it solves.

Pension Liabilities: Fear Tactics and Serious Policy

Source: David Rosnick and Dean Baker, Center for Economic and Policy Research (CEPR), January 2012

From the abstract:
This working paper argues that pension funds should adopt a funding principle that is consistent with a return on holdings conditional on the state of the stock market. As will be shown, the expected “conditional rate of return” used in making this assessment will vary depending on the current ratio of stock prices to trend corporate earnings. This funding rule will lead to a more even flow of contributions into the fund than a rule that is based on a fixed return for assets over time.

An Analysis of Risk-Taking Behavior for Public Defined Benefit Pension Plans

Source: Nancy Mohan, Zhang Ting, Upjohn Institute Working Paper No. 12-179, November 18, 2011

From the abstract:
This paper investigates the determinants of public pension plan risk-taking behavior using the percentage of total plan assets invested in the equity markets and the pension asset beta as measures of investment risk. We find that government accounting standards strongly affect public fund investment risk, as higher return assumptions (used to discount pension liabilities) are associated with higher equity allocation and beta. Unlike private pension plans, public funds undertake more risk if they are underfunded and have lower investment returns in the previous years, consistent with the risk transfer hypothesis. Furthermore, pension funds in states facing financial constraints allocate more assets to equity and have higher pension asset betas. There also appears to be a herding effect in that a change in CalPERS portfolio beta or equity allocation is mimicked by other pension funds. Finally, the results offer mild support of a public union effect.

In Defense of Defined-Benefit Pensions / Modest Reforms to State Plans Are Best Option for Taxpayers

Source: David Madland, Nick Bunker, Center for American Progress, February 2012

From the summary:
Because many states’ public-employee pension plans are currently underfunded–meaning that current assets are less than promised retirement benefits–proposals to drastically reshape public-sector pensions or eliminate them in favor of 401(k)-style retirement plans are expected to once again be introduced this coming year in statehouses across the country. While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely.

2012 Hot Topics in Retirement: Waning Confidence and the Need for Continued Innovation (Survey Highlights)

Source: Aon Hewitt, 2012

Aon Hewitt received survey responses from more than 500 employers to determine their current and future retirement benefits strategy….

Employer confidence at an all-time low:
– 4% of respondents are very confident their employees will retire with sufficient retirement assets, down from 30% in 2011
– 10% of plan sponsors feel very confident that their employees will take accountability for their own retirement success
– 18% of employers feel very confident that workers will be able to manage their income during retirement

Plan sponsors’ slow movement from defined benefit plans:
– 23% of employers provide an ongoing defined benefit plan with benefit accruals to new employees
– 59% of employers carry a pension liability

Sixty-one percent of respondents provide some type of postretirement medical coverage to their current or future retirees. Many of these plans are now focused on providing benefits only to current retirees or currently active employees and not to future hires. While 85% of plans older some subsidy to retirees and 98% provide access to retiree medical coverage, these numbers drop to 23% and 60%, respectively, for future hires.

2010 Comparative Study Of Major Public Employee Retirement Systems

Source: Wisconsin Legislative Council, December 2011

This report compares significant features of major state and local public employee retirement systems in the United States. The report compares retirement benefits provided to general employees and teachers, rather than benefits applicable only to narrower categories of employees such as police, firefighters, or elected officials. Generally, the report has been prepared every two years since 1982 by the Wisconsin Retirement Research Committee staff or the Legislative Council staff.

Finances of Selected State and Local Government Employee Retirement Systems: 3rd Quarter 2011

Source: U.S. Census Bureau, CB11-TPS.52, December 28, 2011

From the summary:
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.

Is There Another Union Premium? The Effect of Union Membership on Retirement Satisfaction

Source: Kevin Neuman Industrial and Labor Relations Review, Vol. 64 no. 5, October 2011
(subscription required)

From the abstract:
Because the “average” American is spending more time in retirement it is important to understand how satisfied retirees are with their experience. Using data from the Health and Retirement Study the author tests for a positive union effect on retirement satisfaction. The author does not find evidence for a direct union premium since positive union effects disappear after controlling for retirement planning, finances, job characteristics, and duration. However, the author does find strong indirect union effects due predominantly to union members having greater defined benefit pension coverage and less forced retirement. These results suggest that declining unionization may not reduce overall retirement satisfaction directly; however, it may do so indirectly. In addition, retirement satisfaction appears to be adversely affected by negative work conditions such as stooping and job stress. General findings also show who in society has most difficulty adjusting to retirement.


Source: National Association of State Retirement Administrators (NASRA), 2011

Wikipension is an online compendium of information pertinent to retirement benefits for employees of state and local government in the U.S. This site is maintained by the National Association of State Retirement Administrators (NASRA), and is intended to foster knowledge and understanding of these benefits and how they are financed and administered.