Category Archives: Retirement

State Public Pension Funds’ Investment Practices and Performance: 2016 Data Update

Source: Pew Charitable Trusts, Issue Brief, September 26, 2018

Substantial investment in complex and risky assets exposes funds to market volatility and high fees.

From the overview:
State and local public retirement systems held $3.8 trillion in assets in 2016, the most recent year for which comprehensive data are available. With the retirement security of 19 million current and former state and local employees at stake, sound and transparent investment strategies are essential.

In a bid to boost investment returns and diversify portfolios, plans in recent decades have shifted away from low-risk, fixed-income vehicles in favor of stocks and alternatives such as private equity, hedge funds, real estate, and commodities. In 2016, half of plan assets were invested in equities, a quarter in alternative investments, and another quarter in bonds and cash.

Investment performance over the last five to six years has, for the most part, tracked plan target rates, with average returns of about 7 percent. However, during the same time frame the fiscal position of public funds has not improved, and in most cases has declined. And while equities and alternatives can provide higher financial returns, they also leave funds vulnerable to market volatility and the risk of shortfalls. Furthermore, as our population ages and the number of retirees grows, cash outflows increase, adding more pressure to pension fund balance sheets.

Because earnings on these investments are expected to pay for about 50 to 60 percent of promised retirement benefits for public workers and retirees, careful attention to reporting and transparency has become increasingly important. In particular, understanding the impact of market volatility on public plans and their sponsoring governments’ budgets is critical for policymakers and stakeholders. Mandatory stress test reporting and full disclosure of asset allocation, performance, and fee details are therefore essential to determining whether public pension plans have the ability to pay promised retirement benefits…..

Can a State Mandate an Employee to Act Voluntarily?—The Saga of State-Mandated Payroll Deduction IRA Programs

Source: Scott E. Galbreath, Journal of Pension Benefits, Vol. 26, No. 1, Autumn 2018
(subscription required)

For small employers who wish to establish payroll-deduction, non-ERISA retirement savings plans with “opt-out” provisions for employees, there is much at stake in how courts will define “voluntary.”

Graying of U.S. Bankruptcy: Fallout from Life in a Risk Society

Source: Deborah Thorne – University of Idaho, Pamela Foohey – Indiana University Maurer School of Law, Robert M. Lawless – University of Illinois College of Law, Katherine M. Porter – University of California – Irvine School of Law, August 5, 2018

From the abstract:
The social safety net for older Americans has been shrinking for the past couple decades. The risks associated with aging, reduced income, and increased healthcare costs, have been off-loaded onto older individuals. At the same time, older Americans are increasingly likely to file consumer bankruptcy, and their representation among those in bankruptcy has never been higher. Using data from the Consumer Bankruptcy Project, we find more than a two-fold increase in the rate at which older Americans (age 65 and over) file for bankruptcy and an almost five-fold increase in the percentage of older persons in the U.S. bankruptcy system. The magnitude of growth in older Americans in bankruptcy is so large that the broader trend of an aging U.S. population can explain only a small portion of the effect. In our data, older Americans report they are struggling with increased financial risks, namely inadequate income and unmanageable costs of healthcare, as they try to deal with reductions to their social safety net. As a result of these increased financial burdens, the median senior bankruptcy filer enters bankruptcy with negative wealth of $17,390 as compared to more than $250,000 for their non-bankrupt peers. For an increasing number of older Americans, their golden years are fraught with economic risks, the result of which is often bankruptcy.

Work perks and benefits: what employees and candidates want

Source: Randstad, Workforce Insights June 19, 2018

From the press release:
….The takeaway? Almost all employees (94%) want their employers to ensure the benefits offered have a meaningful impact on their quality of life, like paying off student loan debt and offering more flexible work arrangements. But before employers attempt a benefits overhaul, they should perhaps focus on better education and communication about their existing benefits. Just under half (48%) of employees report knowing all the perks their employers offer, and only 40 percent say their employers help them understand the benefits that are available…..

Benefits can be an even stronger incentive than salary when considering a job offer, and an unattractive benefits package may drive candidates away.

– Sixty-six percent of workers agree that a strong benefits and perks package is the largest determining factor when considering job offers, and 61 percent would be willing to accept a lower salary if a company offered a great benefits package.
– Forty-two percent of employees say they are considering leaving their current jobs because their benefits packages are inadequate.
– Fifty-five percent have left jobs in the past because they found better benefits or perks elsewhere.

Both benefits and perks matter

When evaluating benefits, quality health insurance reigns supreme. But when it comes to perks, the survey findings indicate that workers want to maximize their time spent at work and appreciate conveniences that help them get the most out of their days.

– When considering a potential employers’ benefits (defined in the study as “standard forms of compensation paid by employers to employees over and above salary”), workers prioritize health insurance (75%), followed by retirement funds and/or pensions (21%).
– Highly rated perks (defined in the study as “workplace-related extras”), that workers want to see more of in the workplace are:
– early Friday releases (33%)
– flexibility and remote working (26%)
– onsite lifestyle amenities, like gyms and dry cleaning (23%)
– unlimited vacation time (22%)
– in-office meal options, like communal snacks or food courts (18%)
– onsite childcare (15%)

When it comes to benefits and perks, one size does not fit all

Age, income level and gender all play a role in the benefits that employees prioritize:

– Forty-one percent of respondents aged 18 to 24 said their current employers do not offer student loan repayment benefits, but wish they did.
– Workers aged 50+ named health insurance as the top benefit they wish their employers offered.
– Nearly a third (28%) of respondents who earn more than $150,000 annually say bonuses are one of the most important perks when considering new employment.
– More women than men want better parental leave policies (women: 22% vs. men: 14%) and onsite childcare (women: 15% vs. men: 6%).
– More men than women would like to see their employers offer life insurance (women: 15% vs. men: 23%).

Local government – Minnesota – Legislation will reduce pension liabilities, but changes are far from a cure-all

Source: Benjamin J VanMetre, Daniel Simpson, Rachel Cortez, Alexandra S. Parker, Moody’s, Sector Comment, June 26, 2018
(subscription required)

The State of Minnesota (Aa1 stable) approved legislation late last month that will change certain public pension benefits and modestly increase plan contributions by government employers and employees. The changes are credit positive for the state and its local governments because they will reduce unfunded pension liabilities and improve plan funding. Even after the changes, however, local governments across Minnesota, particularly school districts, will continue to face high pension burdens….

Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk

Source: Michael Kahn, National Conference on Public Employee Retirement System (NCPERS), May 2018

The argument that taxpayers cannot afford public pensions has gained traction despite a woeful lack of empirical evidence to support it. Legislators across the nation are contemplating options for the future funding of public-sector worker retirement benefits at a time when competition for finite state and local resources is fierce. The reasons are familiar: the lingering effects of recession and misguided budget priorities have taken a toll. Time and again, defined-benefit pensions for firefighters, police officers, teachers, and other public servants have ended up on the chopping block, even though plan participants have consistently held up their end of the bargain.

Unintended consequences often flow from policy actions that are made with short-term pressures in mind. There is a real risk that reducing or even dismantling public pension benefits will ultimately backfire. Tn this installment of ongoing research on the impact of public pensions on the U.S. economy, NCPERS set out to quantify that risk.

The question we asked is this: How does the payment of defined pension benefits and the investment of pension assets impact state and local economies and revenue generation? ….

Related:
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State and Local Government Workforce: 2018 Data and 10 Year Trends

Source: Gerald Young, Center for State and Local Government Excellence, International Public Management Association for Human Resources, and the National Association of State Personnel Executives, May 2018

From the summary:
Since 2009, the Center for State and Local Government Excellence has partnered with the International Public Management Association for Human Resources and the National Association of State Personnel Executives to conduct a study on state and local workforce issues. This year’s report contains both 2018 data on emerging issues like the gig economy and flexible work practices and longitudinal data on recruiting challenges, retirement plan or health benefit changes, hiring, and separations from service.

State and local government workers preparing for retirement: Do you understand your plan formula?

Source: Natalie Kramer and Jesus Ranon-Hernandez, Bureau of Labor Statistics, Beyond the Numbers, Vol. 7 no. 6, May 2018

The National Compensation Survey (NCS) publishes information on the coverage and provisions of employer-sponsored benefit plans for private industry and state and local government workers. For workers approaching retirement age, trying to make sense of retirement options can be daunting. The NCS can provide answers to questions such as the following:

– How much of a benefit will I receive at retirement?
– If I retire early, will my benefits be reduced?
– Will my benefits be increased if I work a few more years?

This issue of Beyond the Numbers describes basic retirement formulas by using different retirement scenarios and formulas to illustrate the monthly retirement benefit. Two examples are provided for specificity…..

How Have Pension Cuts Affected Public Sector Competitiveness?

Source: Laura D. Quinby, Geoffrey T. Sanzenbacher, and Jean-Pierre Aubry, ons for the 2014 improvements, according to their, Issue Brief, April 9, 2018

Summary:
State and local data from 2005 to 2014 show the impact pension cuts have on the ability of governments to recruit, retain, and retire talented employees.

Key findings:
One of the central findings is that, especially for new hires, the implementation of pension reform hampered governments’ ability to attract new employees. This is important to note in an environment where governments are experiencing increases in retirements and are competing for talent at a time when unemployment rates, especially for those with college degrees, are relatively low.

Tending to the Nest Egg: Plan Could Help Nonprofit Workers Build Retirement Security

Source: Monique Ching, Massachusetts Budget and Policy Center, May 17, 2018

Many Massachusetts workers are unable to save enough money for themselves to retire on. This is partly because setting up and managing retirement plans is often too expensive for small and employers. In late 2017, Massachusetts launched a state-administered 401(k) plan that can begin to address some of these challenges. Small nonprofits, with 20 employees or fewer, can participate in the plan.