Category Archives: Pensions

Public Pension Investment Practices

Source: M. Corinne Larson, Government Finance Review, Volume 24, no. 1, February 2008

From the abstract:
A recent survey on public pension investment practices shows that many of the plans have active, sophisticated investment programs in place, and the trend is toward expanding the types of investments made. Therefore, finance officers involved with pension investing will need to understand increasingly sophisticated money management techniques.

Why Not a “Super Simple” Saving Plan for the United States?

Source: Pamela Perun, C. Eugene Steuerle, Urban Institute, May 23, 2008

From the abstract:
Despite decades of significant tax subsidies for pensions and retirement accounts, most Americans retire with little or no pension saving. This paper suggests that it is possible to create a “Super Simple” saving plan that would provide a basic, low-cost, easily administrable plan with the potential to increase significantly the retirement assets available to moderate- and middle-income individuals. This plan follows the lead of a new system about to be implemented in the United Kingdom, which features automatic contribution for employees who do not opt out, a significant government match, and simplification of existing rules amongst other elements.

“Why Don’t Some States and Localities Pay Their Required Pension Contributions?”

Source: Alicia H. Munnell, Kelly Haverstick, Jean-Pierre Aubry, and Alex Golub-Sass, Center for Retirement Research at Boston College, Issue in Brief, SLP #7, May 2008

The brief’s key findings are:
• Over 40 percent of plans in our sample failed to make their annual required contribution (ARC) in 2006.
• Two thirds of these plans faced legal constraints on their contributions, but many are gradually adjusting their limits.
• For the unconstrained plans, the following factors are associated with a failure to make the ARC:

o The plan uses a less rigorous cost method;
o The plan is large; and
o The plan is in a state with a relatively high debt burden.

Why Does Funding Status Vary Among State and Local Plans?

Source: Alicia H. Munnell, Kelly Haverstick, and Jean-Pierre Aubry, Center for Retirement Research at Boston College, State and Local Pension Plans #6, May 2008

From the summary:
While state and local pensions as a group are about as well funded as plans in the private sector, significant variation exists. More than 60 percent are adequately funded, but almost 40 percent are not. Low levels of funding means that future taxpayers will have to pay the cost of unfunded pension promises, as well as the unfunded costs of retiree health insurance. Alternatively, if taxpayers balk at covering these pension commitments, future beneficiaries risk losing benefits, such as ad hoc cost-of-living increases.

Pension Tension: Very few states hold all the assets they should for future retirement and health care benefits

Source: Ron Snell, State Legislatures, May 2008

… How well are states prepared to meet the retirement commitments they have made?

In some ways, very well. State and local governments are custodians of an enormous pool of assets safeguarded for future retirees–$3.24 trillion in cash and investments at the end of last October. In the fiscal year that ended on June 30, 2007, state and local governments and their employees contributed $91 billion to retirement funds, and the funds earned more than $265 billion on their investments. Funding levels generally have been improving in recent years, as investments have recovered from their post-2000 lows.

In other ways, states are not so well prepared. Very few states hold all the assets they should have on hand to prepare for future retirement benefits. All states invest in order to meet future obligations, but even allowing for future investment return, some state trust funds hold less than half what they should. And a substantial number are below the 80 percent figure that the public retirement community regards as adequate. The Pew Center on the States recently estimated that state pension systems (not including locally run systems) are about $360 billion short of the assets they should ideally hold for future retirees.

Full text

The Miracle of Funding by State and Local Pension Plans

Source: Alicia H. Munnell, Kelly Haverstick, Steven A. Sass and Jean-Pierre Aubry, Center for State and Local Government Excellence

The brief’s key findings are:
* State and local pension plans, overall, are as well funded as private plans, with assets covering nearly 90 percent of liabilities.
* This outcome is striking, even “miraculous,” given that public plans:
– tend to pay larger benefits;
– use a more stringent funding yardstick; and
– are not covered by any national legislation that mandate funding standards.
* Assets per worker increased markedly in the1990s after states and localities responded to new standards issued by the Government Accounting Standards Board.

Full report

Pension Reform in the United States: Lessons from the Italian Experience

Source: Raymond L. Hogler and Herbert Hunt III, Labor Law Journal, Spring 2008

This article examines the Italian pension reforms and draws insights from the Italian experience that could be useful in developing a program in the U.S. We argue that both process and substance are important in dealing with pension issues. An adequate process ensures that political interest groups are sufficiently engaged to support the idea of reform, that a sufficient time frame exists for citizens to adapt to the changes, and that the overall direction of change remains consistent with reform, even if minor adjustments are made in the implementation. The substantive concepts from the Italian model involve a compulsory private savings program, an integrated approach to health care, and a political commitment forceful and visionary enough to rise above ideological squabbling.

Why Have Some States Introduced Defined Contribution Plans?

Source: Alicia H. Munnell, Alex Golub-Sass, Kelly Haverstick, Mauricio Soto, and Gregory Wiles, Center for Retirement Research at Boston College, SLP#3, January 2008

Although defined benefit plans dominate the state and local sector, in the last decade twelve states have introduced some form of defined contribution plan. The degree of compulsion varies among these states from mandatory participation in a defined contribution plan for new employees, to mandatory participation in both a defined benefit and defined contribution plan, to having the defined contribution plan only as an option…

…The most important explanation turns out to be political rather than economic. States where the same political party controlled the legislature and governorship and that party was republican were the most likely to introduce a defined contribution plan. The results also suggest that plans with a high percentage of union members and those with sizable employee contributions are less likely to add a defined contribution plan component. Interestingly, states without Social Security coverage, which provides a basic level of defined benefit protection, are not deterred from shifting to a mandatory defined contribution plan.

What Do We Know About the Universe of State and Local Plans

Source: Alicia H. Munnell, Kelly Haverstick, Mauricio Soto, and Jean-Pierre Aubry, Center for Retirement Research at Boston College, SLP#4, March 2008

From the summary:
Several surveys report data on public pension plans, but they tend to focus on the 120 major state systems and some include a sampling of locally administered plans. The Census of Governments is the only source that reports on the entire universe of state administered plans, in addition to more than 2,000 locally administered plans. This brief describes that population, reports on the investment performance of different types of public plans, and compares the investment performance of public and private plans.

State and Local Government Retiree Benefits: Current Funded Status of Pension and Health Benefits, January 29, 2008

Source: Government Accountability Office, GAO-08-223, January 2008

Pension and other retiree benefits for state and local government employees represent liabilities for state and local governments and ultimately a burden for state and local taxpayers. Since 1986, accounting standards have required state and local governments to report their unfunded pension liabilities. Recently, however, standards changed and now call for governments also to report retiree health liabilities.