Category Archives: Retirement

Teacher Pensions vs. 401(k)s in Six States: Colorado, Connecticut, Georgia, Kentucky, Missouri and Texas

Source: Leon (Rocky) Joyner, Nari Rhee, UC Berkeley Center for Labor Research and Education (Labor Center) and the National Institute on Retirement Security, January 2019

From the abstract:
A new report finds that teacher pension plans play a critical role in retaining educators while also providing greater retirement security than 401(k)-style retirement accounts. Eight out of ten educators serving in the six states studied can expect to collect pension benefits that are greater in value than what they could receive under an idealized 401(k)-type plan. The study also finds that the typical teacher in these states that offer pensions will serve 25 years in the same state, while two out of three educators will teach for at least 20 years.

These findings are featured in new research, Teacher Pensions vs. 401(k)s in Six States: Colorado, Connecticut, Georgia, Kentucky, Missouri and Texas, from the UC Berkeley Center for Labor Research and Education (Labor Center) and the National Institute on Retirement Security. The report is author by Dr. Nari Rhee, director of the Retirement Security Program at the UC Berkeley Labor Center, and Leon (Rocky) Joyner, vice president and actuary with Segal Consulting.

State and Local Governments’ Fiscal Outlook: 2018 Update

Source: U.S. Government Accountability Office, GAO-19-208SP, December 13, 2018

From the summary:
What’s the prognosis for the fiscal health of state and local governments across the nation?

Our annual outlook suggests the sector will have an increasingly tough time covering their bills over the next 50 years. Our model shows both revenue and spending will increase; however, spending will rise faster. Revenues may be insufficient to sustain the amount of government service currently provided.

Our model also suggests health care costs will largely drive the spending increases—in particular, Medicaid spending and spending on health benefits for state and local government employees and retirees.
Related:
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Rising U.S. States’ OPEB Liabilities Signal Higher Costs Ahead

Source: S&P Global Ratings, November 28, 2018
(subscription required)

Other postemployment benefit (OPEB) liabilities, which consist primarily of retiree health care plans, are a growing concern for certain states’ credit quality and require attention to control higher future costs. Total unfunded state OPEB liabilities have increased significantly for the third year in a row, according to S&P Global Ratings’ latest survey of U.S. states.

Latinos’ Retirement Insecurity in the United States

Source: Jennifer Erin Brown, National Institute on Retirement Security, December 2018

From the summary:
This report finds that inequalities in access and eligibility to employer-sponsored retirement plans are contributing to persistent retirement savings gaps for Latinos. As a result, Latinos are falling even further behind in preparing for retirement. Only 31 percent of all working age Latinos participate in workplace retirement plans, resulting in a median retirement account balance equal to $0.
The research finds that:
– Access and eligibility to an employer-sponsored retirement remains the largest hurdle to Latino retirement security.
– The retirement plan participation rate for Latino workers (30.9%) is about 22 percentage points lower than participation rate of White workers (53%).
– When a Latino has access and is eligible to participate in a plan, they show slightly higher take-up rates when compared to others races and ethnicities.
– For working Latinos who are saving, their average savings in a retirement account is less than one-third of the average retirement savings of White workers. Overall, less than one percent of Latinos have retirement accounts equal to or greater than their annual income.

How Much Income Do Retirees Actually Have?

Source: Anqi Chen, Alicia H. Munnell and Geoffrey T. Sanzenbacher, Center for Retirement Research at Boston College, IB#18-20, November 2018

The brief’s key findings are:
– Recent research has re-documented that the Census Bureau’s Current Population Survey (CPS) understates retirement income.
– Some have wondered if this problem also applies to other surveys and calls into question decades of research that suggest many are ill-prepared for retirement.
– To answer this question, the analysis compared estimates from five commonly used national surveys to administrative data from the IRS and Social Security.
– This comparison shows that:
– the CPS continues to substantially understate retirement income, but
– the other four surveys – the SCF, HRS, SIPP, and PSID – track closely with administrative data, and
– estimates of retirement preparedness using a reliable survey find that roughly half of older households may fall short in retirement.

Related:
Working Paper

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….