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.
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.
– 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
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.
From the press release:
The nation’s state and local public-employee retirement systems had $2.7 trillion in total cash and investment holdings in 2010, a $257.2 billion or 10.6 percent increase from $2.4 trillion in 2009, according to new statistics from the U.S. Census Bureau. This follows a $722.2 billion loss the previous year.
These statistics come from the 2010 Annual Survey of Public-Employee Retirement Systems, which provides an annual look at the financial activity and membership information of the nation’s state and local public-employee retirement systems, including revenues, expenditures, investment holdings, and number of retirement systems and beneficiaries.
From the press release:
A new survey by the Center for State and Local Government Excellence finds that more than half of state and local governments still have a pay freeze and are adjusting retirement and health care benefits. At the same time, the pace of layoffs has slowed with 28 percent reporting layoffs this year compared with 40 percent last year.
State and Local Government Workforce: 2012 Trends is a follow-up to three previous studies that have looked at questions related to the size of the workforce, compensation and benefits, and employees’ plans for retirement.
The top workforce issue cited in 2012 is the public perception of government workers. Issues that continue to rank as most important are retaining staff for core services, addressing employee morale and workload problems, staff development, and reducing employee health care costs.
Workforce changes include:
– Employees accelerating their plans for retirement (22 percent)
– Workforce has shrunk since the 2008 economic downturn (68 percent)
– Pay freezes (51 percent)
– Hiring freezes (42 percent)
– Layoffs (28 percent)
In the area of health care:
– Shifted more health care costs to employees (51 percent, down from 72 percent last year)
– Shifted more health care costs to retirees (11 percent, down from 23 percent)
– Created wellness programs (26 percent, down from 33 percent)
In the area of pensions:
– Raised employee contributions to pension plans for current workers (24 percent, up from 22 percent last year)
– Increased employee contributions for new hires (27 percent, up from 23 percent last year)
Considering that state and local pension systems are staring at $4 trillion in unfunded liabilities, it’s no wonder that pension reform is on the minds of legislators across the country. Workforce Management takes a state-by-state look at the mounting problems and potential solutions being considered.
State Public Sector Retirement Plan Roundup
Source: Lisa Beyer, Patty Kujawa and Rita Pyrillis, February 10, 2012
Public sector retirement plans of the future are emerging today, bearing only slight resemblance to their predecessors.
Wilshire‘s 2012 Report on Funding of State Retirement Systems shows an increase in the funded status of plans.
Wilshire Consulting estimates, of the 126 state retirement systems included in the study, the ratio of pension assets-to-liabilities, or funding ratio, for the plans was 77% in 2011, up from an estimated 69% in 2010. Wilshire states this improvement in funding ratio was fueled by strong global stock market performance in the twelve months ending June 30, 2011. Growth in fund assets managed to outpace growth in plan liabilities over fiscal 2011.
From the press release:
A new economic impact study finds that pension expenditures provide critical economic stimulus to the economy – more than $1 trillion in economic output in the United States….The study calculates that pension expenditures supported some 6.5 million American jobs that paid nearly $315 billion in income to other Americans in 2009. More than $1 trillion in total economic output and $553 billion in value added in the United States was attributable to pension benefits. These expenditures also supported some $134 billion in tax revenue at the local, state, and federal levels.
– State Fact Sheets
From the summary:
Despite the recent economic downturn, most large state and local government pension plans have assets sufficient to cover benefit payments to retirees for a decade or more. However, pension plans still face challenges over the long term due to the gap between assets and liabilities. In the past, some plan sponsors have not made adequate plan contributions or have granted unfunded benefit increases, and many suffered from investment losses during the economic downturn. The resulting gap between asset values and projected liabilities has led to steady increases in the actuarially required contribution levels needed to help sustain pension plans at the same time state and local governments face other fiscal pressures.
Since 2008, the combination of fiscal pressures and increasing contribution requirements has spurred many states and localities to take action to strengthen the financial condition of their plans for the long term, often packaging multiple changes together. GAO’s tabulation of recent state legislative changes reported by NCSL and review of reforms in selected sites revealed the following:
– Reducing benefits: 35 states have reduced pension benefits, mostly for future employees due to legal provisions protecting benefits for current employees and retirees. A few states, like Colorado, have reduced postretirement benefit increases for all members and beneficiaries of their pension plans.
– Increasing member contributions: Half of the states have increased member contributions, thereby shifting a larger share of pension costs to employees.
– Switching to a hybrid approach: Georgia, Michigan, and Utah recently implemented hybrid approaches, which incorporate a defined contribution plan component, shifting some investment risk to employees.