Category Archives: Pensions

Unions and Public Pension Benefits

Source: Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby, Center for Retirement Research at Boston College, SLP#19, July 2011

From the abstract:
State and local pensions have been headline news since the 2008 financial collapse reduced the value of their assets, leaving a substantial unfunded liability. The deterioration in the funded status of these plans raised pension costs at the same time that the ensuing recession wreaked havoc with state and local budgets. Legislatures across the country have responded by reducing pension benefits – primarily for new employees – and increasing employer and employee contributions. As part of that process, governors in several states have launched initiatives to curb collective bargaining in the public sector. One possible implication is that governors view unions as responsible for pushing up state and local pension benefits. This brief identifies the impact of public sector unions and other factors on benefit levels, wages, and employment

An Update on Locally-Administered Pension Plans

Source: Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, and Laura Quinby, Center for Retirement Research at Boston College, SLP#18, July 2011

From the abstract:
The financial crisis and ensuing recession have had an enormous impact on state-administered pension plans. Funded levels declined sharply, the Annual Required Contribution (ARC) increased to make up for the fall in funding, and the percent of ARC paid declined as the bottom fell out of state revenues. In response, states have increased employer and employee contributions, cut employment, slowed wage growth, and lowered benefits for new employees (and in a few instances reduced COLAs for current employees, but these initiatives have been challenged and are currently in the courts). Less is known about how locally-administered plans have fared in the last four years. This brief attempts to fill that gap.

Closing the Gap: Understanding and Managing State Pension and Retiree Health Care Benefits

Source: Pew Center on the States, June 2011

Policy makers from 25 states explored the long-term challenges posed by their public sector retirement costs at the Pew Center on the States’ conference, “Closing the Gap: Understanding and Managing State Pension and Retiree Health Care Benefits.” The event covered the financial risks posed by gaps in state and local pension and retiree health benefit funding, options to address public sector retirement costs and the effects of those changes on the state workforce..”

Robert H. Attmore, chairman of the Governmental Accounting Standards Board (GASB), discussed likely changes to accounting and financial reporting standards that would affect all state and local public sector pension plans.

Several state officials discussed how they are confronting pension issues, including Gina Raimondo, general treasurer for the State of Rhode Island, and officials from Colorado, Georgia, Michigan, Nebraska and Pennsylvania.

Sessions included:
– Gauging the Risks–Public Sector Retirement Liabilities
– Gauging the Risks–State Case Studies
– Bending the Curve–Long-term Pension Cost
– Bending the Curve–State Workforce Retention and Recruitment
– Bending the Curve–Retiree Health Care and Other Non-pension Benefits
– The National Significance of State and Local Public Sector Retirement Issues
– The State-Local Balancing Act
– Looking Forward: Striking the Right Balance

Lessons from Well-Funded Public Pensions: An Analysis of Plans that Weathered the Financial Storm

Source: Jun Peng, Ilana Boivie, National Institute on Retirement Security, June 2011

From the summary:
A new study identifies common elements of public sector defined benefit pension plans that remained well-funded despite two severe economic downturns.
See also:
Press release
Fact sheet

Twenty-Five Years After Federal Pension Reform

Source: Jamie Cowen, Employee Benefit Research Institute, EBRI Issue Brief #359, July 2011

From the summary:
Congress created the Federal Employee Retirement System (FERS) in 1986, in the most sweeping overhaul of retirement benefits for civilian workers in modern times. The law is now 25 years old, has changed little (other than modest expansion of investment choices), and remains the basis for retirement benefits provided to some 3 million civilian federal workers.

With state governors and legislators currently grappling with many of the same issues Congress faced in 1986, FERS may provide useful background for their deliberations. This report provides a legislative history of the arduous five-year effort to overhaul the federal retirement system by enacting FERS and how various forces affected the passage of the law.

Police and Fire Pensions in Florida: A Historical Perspective and Cause for Future Concerns

Source: Robert E. Lee, Joseph Vonasek, Compensation & Benefits Review, Vol. 43 no. 3, May/June 2011
(subscription required)

From the abstract:
Supplementary contributions to pension plans are predicted to increase for some Florida municipal governments because of the funding source used for police and fire plans. This article examines the history of local government pensions and focuses on Chapter 175 and 185 Pension Plans, which access funding through a tax on property insurance premiums. The notable legislative changes, Attorney General Opinions and court cases are also briefly assessed. This study research examines a sample of 32 pension funds in 20 Florida cities and indicates that the cost of providing these pensions is increasing because of legislative mandates for use of these revenues. This is evidenced by a historical decrease in the funding ratios of the funds of the cities sampled.

Token Presence or Substantive Participation? A Study of Labor Trustees on Pension boards

Source: Anil Verma and Johanna Weststar, Journal of Labor Research, Volume 32, Number 1, March 2011
(subscription required)

From the abstract:
In contrast to their absence from corporate boards in North America, labor representatives do have a seat on many pension boards. Given the lack of research on the role of labor participation in these fora, this study reports findings from a survey of labor trustees. We find that labor trustees make greater contributions to procedure-oriented processes such as information sharing, rule-making and rule interpretation; and, fewer contributions to investment-oriented processes such as investment decisions, fund performance and manager selection. Gender does not seem to matter in explaining participation in board activities. Accountability in terms of a requirement to report back to their union did increase labor trustee contribution but only to procedural issues, not investment issues. Short board tenure, lack of multiple labor seats and lack of training appear to limit labor trustees’ contribution to investment-based issues. Prior exposure to pension issues, and longer tenure appear to increase contributions to procedure-based issues. Exclusionary board dynamics hinder both types of contributions by labor trustees. These findings suggest that labor trustees do take advantage of their position to make procedural contributions but they find it hard to expand into newer, non-traditional roles such as investment-related activities of the Board.

The Funding of State and Local Pensions in 2010

Source: Alicia H. Munnell, Jean-Pierre Aubry, Josh Hurwitz, Madeline Medenica, and Laura Quinby, Center for Retirement Research at Boston College, SLP#17, May 2011

From the abstract:
The financial crisis of 2008-09 was a major setback for state and local pension plans, as plummeting asset values caused their funded ratios to drop significantly. The initial impact of the crisis on plan health was covered in a brief published last year. Since that time, several new developments have had a mixed effect on the current and future health of public plans. On the positive side, the stock market has risen significantly from the 2009 trough. And many states have introduced reforms to increase pension contributions and reduce future costs. On the negative side, recent growth in liabilities has outpaced growth in actuarial assets (because these values smooth market gains and losses over a five-year period). Moreover, the recession that accompanied the financial crisis has made it more difficult for states and localities to contribute the full amount of their required pension contribution. This brief explores how all of these developments affected the funded status of state and local plans in 2010

California’s Public Sector Pension Plans in Perspective

Source: J. G. Kilgour, Compensation & Benefits Review, Vol. 43 no. 3, May/June 2011
(subscription required)

From the abstract:
The recession of 2001 caused funding problems for public sector pension plans in California and throughout the United States. By 2007, they had largely recovered only to be devastated by the Great Recession that began in the fourth quarter of 2008, the effects of which are still with us. Matters have been exacerbated and complicated by the adoption of Governmental Accounting Standards Board’s Statement 45, which requires that other postemployment benefits (OPEBs), mainly retiree health care obligations, be included in financial statements. Pension plans are prefunded. OPEBs are not. For this and other reasons, the two should be addressed separately. Although there are problems, California’s public sector pension plans are in better shape than one would gather from what has been reported by the media. OPEBs are a larger and more difficult problem.