Category Archives: Retirement

Union workers more likely than nonunion workers to have retirement benefits in 2019

Source: Bureau of Labor Statistics, U.S. Department of Labor, TED: The Economics Daily, October 25, 2019

Ninety-four percent of civilian union workers and 67 percent of nonunion workers had access to retirement benefits through their employer in March 2019. Access means the benefit is available to employees, regardless of whether they chose to participate. Eighty-five percent of union workers and 51 percent of nonunion workers participated in an employer-sponsored retirement benefit plan. The take-up rate—the share of workers with access who participate in the plan—was 90 percent for union workers and 77 percent for nonunion workers.

Pension Reforms and Public Sector Turnover

Source: Evgenia Gorina, Trang Hoang, Journal of Public Administration Research and Theory, Published: June 24, 2019

From the abstract:
Over the past decade, many states have reformed their retirement systems by reducing benefit generosity, tightening retirement provisions, introducing non-defined-benefit (DB) plan options and even replacing DB plans with defined-contribution plans. Many of these reforms have affected post-employment benefits that public workers will receive when they retire. Have these reforms also affected the attractiveness of public sector employment? To answer this question, we use state-level data from 2002 to 2015 and examine the relationship between state pension reforms and public employee turnover following the reforms. We find that employee responsiveness to the reforms was tangible and that it differed by reform type and worker education. These results are important because the design of public retirement benefits will continue to influence the ability of the public sector to recruit and retain high-quality workforce.

A correction has been published.

Financial Asset Inequality and Its Implications for Retirement Security

Source: Nari Rhee, Tyler Bond, National Institute on Retirement Security, Issue Brief, September 2019

From the summary:

A new research brief finds that financial asset inequality among Americans continues to increase, and the inequality is consistent across generations. This wealth inequality, combined with dangerously low retirement savings among most households, poses a significant threat to retirement for working Americans.

The new analysis indicates that from 2004 to 2016, the share of financial assets owned by the top 25 percent of Baby Boomer households grew from 86 percent to 91 percent. Meanwhile, the share of assets owned by the bottom 50 percent of Baby Boomer households shrank from three percent in 2004 to below two percent in 2016.

Among GenX households, the wealthiest top 25 percent owned 87 percent of financial assets in 2016. Millennials in 2016 reached a comparable degree of financial asset concentration, with 85 percent of financial assets owned by the wealthiest 25 percent.

The research brief also recommends three well-established public policies to help improve retirement security for working Americans:

Michigan Supreme Court Denies Lifetime Benefits To Governmental Employees

Source: Amelia Dantzer, Employment Alert, Volume 36, Issue 18, September 4, 2019
(subscription required)

The Michigan Supreme Court has held in a ruling that governmental employees were not entitled to lifetime health benefits because their collective bargaining agreements (CBA) did not create a vested right to lifetime coverage. The court found that none of the relevant bargaining agreements included express language providing for vested, lifetime health benefits, and all the agreements contained “durational” clauses providing that the terms are only in effect for three years. Specifically, the court held that “[t]he CBAs contain a general three-year durational clause, and no provision specifies that the benefits in dispute are subject to any different duration. If the parties meant to vest healthcare benefits for life, they easily could have said so in the CBAs, but they did not.”

Employee Benefits—It’s Time to Start Talking About Annuities in 401(k) Plans

Source: Mark E. Bokert and Alan Hahn, Employee Relations Law Journal, Vol. 45, No. 2, Autumn 2019
(subscription required)

From the abstract:
When an employee retires, he or she typically has three sources of income to draw upon: personal savings, Social Security, and a retirement plan (typically a 401(k) plan). These income sources are subject to certain risks. There is “longevity risk,” i.e., the risk that the retiree will outlive his or her savings. There is also “inflation risk,” i.e., the risk that the retiree’s purchasing power will erode over time. There is also an “incapacity risk,” i.e., the risk that the retiree will have a diminishing capacity to oversee his or her investments as he or she ages.

Annuities can help solve several of these issues because they provide benefits over a retiree’s lifetime. As a result, some employers are adding annuities to their 401(k) plan. Congress is also encouraging 401(k) plan sponsors to offer in-plan annuities. Proposed bipartisan legislation alleviates many concerns that 401(k) plan sponsors have about offering annuities within their plans. This legislation is expected to be enacted into law later this year. As in-plan annuities solve important retirement issues and are far less expensive to participants than those available in the retail market, plan sponsors may wish to consider making in-plan annuities available to their 401(k) plan participants.

The Evolution of Private Sector Retirement Income From Defined-Benefit Pensions to Target-Date 401(k) Plans

Source: John G. Kilgour, Compensation & Benefits Review, OnlineFirst, Published July 19, 2019

From the https://doi.org/10.1177/0886368719864480:
Traditional employer-sponsored defined-benefit pension plans in the private sector that provided lifetime benefits have declined precipitously since 1985. They have been largely replaced by Section 401(k) plans in which investment control, market risk and longevity risk have been transferred from the employer to the participant. Most participants opted for the low-yielding money market plan default option, which proved inadequate for providing viable retirement income. The Pension Reform Act of 2006 made two important changes to 401(k) plans: (1) allowed automatic enrollment and (2) allowed target-date funds as a “qualified default investment alternative.” This article examines the evolution from defined-benefit pensions to target-date funds and the closely related collective investment trusts.

Alternative Realities: The Impact of Extreme Changes in Defined Contribution Plans on Retirement Income Adequacy in America

Source: Jack VanDerhei, EBRI Issue Brief, June 13, 2019
(subscription required)

From the summary:
In recent years there have been a number of policy proposals that call into question the value of existing defined contribution plans. However, the suggested alternatives do not provide a detailed analysis of the impact of terminating defined contribution plans on retirement income adequacy for American households. Previous research by the Employee Benefit Research Institute (EBRI) has provided some tangential evidence with respect to the potential impact. In 2014 EBRI provided simulation analysis of the serious error introduced by models that ignored future contribution activity from defined contribution plans. In 2017 EBRI produced simulation results showing that, if there were no employer-sponsored retirement plans (defined benefit as well as defined contribution) and individuals were assumed to behave in the manner observed for those with no access to such plans, the aggregate retirement deficits would jump from $4.13 trillion to $7.05 trillion (an increase of 71 percent).

Pensions and retiree healthcare challenge some of the largest mass transit enterprises

Source: Thomas Aaron, Timothy Blake, Moody’s, Sector In-Depth, April 11, 2019
(subscription required)

Pensions and retiree healthcare pose a credit risk for some of the largest mass transit enterprises. Transit enterprises with material unfunded liabilities face budget challenges that can limit capital reinvestment, contribute to rising debt loads and/or lead to lower service levels.

Cities make slow progress in addressing retiree healthcare liabilities

Source: Sunny Zhu, Thomas Aaron, Eric Hoffmann, Leonard Jones, Moody’s, Sector In-Depth, Local government – California, March 18, 2019
(subscription required)

Similar to pensions, other post-employment benefits (OPEB) — principally retiree healthcare — are liabilities that pose credit risks for some local governments. With rising healthcare costs, longer life spans and aging workforces, OPEB costs are escalating rapidly in some casesand unfunded liabilities are becoming a material source of balance sheet leverage. Positively,numerous California (Aa3 positive) cities, including San Jose (Aa1 stable), San Francisco (Aaa stable) and San Diego (Aa2 stable), have taken proactive steps to curb OPEB costs. Few cities have meaningfully reduced these liabilities to date because most cost-containment strategies will take years to provide substantial savings. If unaddressed, rising OPEB expenses threaten to curtail other local government spending priorities.

OPEB Brief: The Credit Impacts Of OPEB Obligation Bonds

Source: S&P Global Ratings, March 11, 2019
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Other postemployment benefit (OPEB) underfunding of obligations is pervasive across U.S. state and local governments, and costs are likely to continue to rise rapidly. Although, compared with pensions, these obligations may have some more flexibility in how they’re provided, we recognize that funded levels are almost universally lower than those of pensions and could quickly become a challenge to budgets if not addressed. With the implementation of Governmental Accounting Standards Board (GASB) Statements Nos. 74 and 75, many governments are seeing large new OPEB liabilities on their balance sheets that are growing due to insufficient contributions (see “Credit FAQ: New GASB Statements 74 And 75 Provide Transparency For Assessing Budgetary Stress On U.S. State & Local Government OPEBs,” published March 14, 2018, on RatingsDirect). In response, governments are looking to OPEB obligation bonds (OOBs) as a way to address funding concerns. Depending on the circumstances surrounding the OOB, issuance could have rating implications.