Congress jeopardized the future of state plans to help private employees save for retirement. States don’t seem to care.
From the summary:
Public employees with retirement plan choice overwhelmingly choose defined benefit pension plans over defined contribution 401(k)-type individual accounts.
Decisions, Decisions: An Update on Retirement Plan Choices for Public Employees and Employers, finds that public sector employees with retirement plan choice overwhelming choose defined benefit (DB) pension plans over 401(k)-type defined contribution (DC) individual accounts.
Among the eight states studied that offer employees such a choice, the DB pension take-up rates in 2015 were 80 percent or higher in six states. Two of the plans studied had pension take-up rates higher than 95 percent, while Florida and Michigan had take-up rates of 76 percent and 75 percent, respectively. Importantly, the research finds that even when the retirement plan default option favors a DC plan, most employees still select a DB pension plan.
For example, in Washington the default retirement plan is a combination DB/DC plan. Employees must affirmatively act to elect to participate in the DB pension plan instead, and they do. The majority of newly-hired employees – six out of every ten new hires – actively choose a pension plan.
After many fits and false starts to pension reform, Pennsylvania’s governor has a signed a measure that establishes a hybrid defined benefit/defined contribution plan for new state employees. Although some industry observers believe the new law is a step in the right direction, several others said the switch to a hybrid DB/DC plan does little — if anything — to solve the state’s core underfunding problem…..
…. Both Ms. Childers and Ms. Oakley cited West Virginia and Alaska as two states that decided to switch to a DC plan from a DB plan for state employees — and it didn’t go well for either. In 1991, West Virginia closed its teacher retirement system to new employees to address its underfunding issue, according to a 2016 NIRS survey shared by Ms. Oakley. After 10 years, the replacement DC plan was costing the state twice as much, so it went back to a pension. ….
From the press release:
State initiatives aimed at helping millions of Americans retire with improved financial security have the momentum to succeed and overcome setbacks, a white paper released today by the National Conference on Public Employee Retirement Systems (NCPERS) has found.
The 36-page white paper, “Secure Choice 2.0: States Blazing a Path to Retirement Security for All,” marks two milestones in the growing movement among states to expand workplace retirement savings programs for private-sector employees:
– Six years ago, in September 2011, NCPERS laid out the rationale for state-facilitated retirement programs for private-sector workers in a white paper, “The Secure Choice Pension: A Way Forward for Retirement Security in the Private Sector.”
– Five years ago, in September 2012, California became the first state to formally act on the Secure Choice model by passing the Secure Choice Retirement Savings Trust Act, which established a board and authorized a comprehensive feasibility study. ….
…..The white paper covers three broad topics: A history of how the Secure Choice approach gained popularity, details on various initiatives underway in the states, and perspectives on what challenges and hurdles states face, especially following the withdrawal earlier this year of ERISA Safe Harbor rules that were designed to make it easier for states to develop their own so-called Auto-IRA programs. In addition, it includes appendixes on state and local developments, model legislation, helpful organizations and websites, and models projecting various savings scenarios….
The U.S. ranks 17th globally in retirement security, down three spots from last year, the Natixis Global Asset Management 2017 Global Retirement Index shows. The index, launched in 2013, assesses how well retired citizens live in various nations across four broad categories — health, finances, material well-being and quality of life. The 2017 index was released Wednesday. Forty-three countries with developed retirement systems were assessed in 2017, the same number as last year. Natixis, in a report accompanying this year’s release, attributed part of the decline in the U.S. ranking to “lagging life expectancy and a growing gap in economic opportunity.”….
2017 Global Retirement Index
Source: Natixis Global Asset Management, July 2017
Many private- and public-sector firms offer employer-sponsored health insurance to their employees and contribute toward the cost of that insurance as part of the employee’s compensation package. The federal government, as an employer, also offers health benefits to its employees and retirees. In general, federal employees receive health benefits through the Federal Employees Health Benefits (FEHB) Program, administered by the Office of Personnel Management (OPM). However, Members of Congress and designated congressional staff receive employer-sponsored insurance (ESI) through the District of Columbia’s small business health options program (SHOP) exchange, also known as DC Health Link (hereinafter the “DC SHOP”). ….. In addition to health insurance coverage under the DC SHOP, this report describes other health benefits available to Members and congressional staff, including the Federal Flexible Spending Account Program (FSAFEDS); the Federal Employees Dental and Vision Insurance Program (FEDVIP); the Federal Long Term Care Insurance Program (FLTCIP); the Office of the Attending Physician; and treatment in military facilities. …..
Source: U.S. Census Bureau, June 2017
This report provides national summary data on the revenues, expenditures and composition of assets of the largest defined benefit public employee pension systems for state and local governments. This report produces three tables: Tables 1 and 3 include data on cash and security holdings and Table 2 provides data on earnings on investments, contributions and payments.
From the summary:
Recruiting and retaining qualified personnel was the top priority for 91 percent of respondents to the 2017 workforce trends survey released today by the Center for State and Local Government Excellence (SLGE). Respondents also rated staff and leadership development (77 and 76 percent) and succession planning (74 percent) as important workforce issues.
– Key findings from the annual survey, conducted by SLGE, the International Public Management Association for Human Resources, and National Association of State Personnel Executives were:
– 74 percent reported hiring staff
– 47 percent hired contract or temporary employees
– 38 percent shifted more health care costs to employees
– 24 percent established wellness programs.
– Every year since 2010, a majority of respondents to the annual survey has reported making changes to health insurance benefits. On the other hand, the pace of changes to retirement plans has slowed in recent years. In 2012, 24 percent reported increasing current employee contributions to retirement plans compared with 9 percent increasing current employee contributions in 2016. Positions hardest to fill in 2016 were:
– Police officers (21 percent)
– Information technology (17 percent)
– Engineers (14 percent) and
– Health care (13 percent)
– Skills in greatest demand were in interpersonal relations (65 percent), written communications (53 percent), and technology (51 percent).
States face a costly future if their citizens fail to save enough for retirement.
Most Americans are not saving enough for retirement. The problem is especially severe among small-business employees, low-income workers and communities of color. On the brink of a national retirement security crisis, state lawmakers are stepping into the breach with a spectrum of innovative solutions.
Retirement planning experts have traditionally used the analogy of a three-legged stool to describe the common sources of retirement income: Social Security, employer-provided pensions and individual savings. But the stool has grown wobbly for many workers, particularly in the private sector. For one, fewer employers offer traditional pensions, which puts the onus on workers to save more themselves. Another issue is changing demographics—people are simply living longer and need to save more money as a result. A third concern: Just how secure is Social Security?
As state officials stare down the prospect of mounting costs if their citizens retire into poverty, they’re looking carefully at how to boost retirement savings. Should they create and facilitate new retirement savings programs for private sector workers or encourage participation in existing plans?….
Home equity and retirement accounts—401(k)-type plans and IRAs—account for nearly all the assets that many families have to depend on in retirement outside of Social Security and traditional pension plans, according to new research from EBRI.