Category Archives: Retirement

Spotlight on Retiree Health Care Benefits for State and Local Employees in 2014

Source: Joshua Franzel and Alex Brown, National Association of State Retirement Administrators (NASRA) and the Center for State and Local Government Excellence (SLGE), December 2014

From the summary:
An overview of the health care and other postemployment benefits state and local governments provide for their retired employees and how they pay for them.

Key findings:
– For most employees who retire from state (or covered local) government service, this coverage continues into retirement.
– The style and size of coverage varies and state and local government retiree health programs do not have a uniform design.
– Different plan designs, coverage levels, and financing arrangements produce different costs for sponsoring state governments.
– States vary in how they approach financing retiree health benefits, with some prefunding future benefit obligations while others pay for the associated costs annually as part of the state operating budget.
– The value of assets states hold in trust varies significantly.

This brief updates finance data on health care and other postemployment benefits (or OPEB) provided to general state employees featured in the 2013 report. The update also expands data to include additional state and local government employee cohorts including teachers, public safety officers, university employees, and legislators, among others.

Building Bulwarks Against the Breakdown of Retirement Benefits for Public Sector Employees

Source: Amanda Cuda, HR News, Vol. 80 no. 11, November 2014
(scroll down) (subscription required)

….Recognizing that cutting subsidies and payments cannot stand as the only way to address pension problems without risking employees’ financial security, some public sector organizations are looking at innovative ways to lessen their spending….

Still a Better Bank for the Buck: Update on the Economic Efficiencies of Pensions

Source: William B. Fornia, Nari Rhee, National Institute on Retirement Security, December 2014

From the summary:
New research finds that pension plans are a far more cost-efficient means of providing retirement income as compared to individual defined contribution accounts.

The study calculates that the economic efficiencies embedded in defined benefit (DB) pensions enable these retirement plans to deliver the same retirement income at a 48% lower cost than 401(k)-type defined contribution (DC) accounts.

The new analysis finds that there are three unique drivers of the cost savings. More specifically, DB pensions:
– Pool the longevity risks of large numbers of individuals to provide Americans with stable income that won’t run out in retirement. Said another way, pensions only have to save for the average life expectancy of a group of individuals. Absent a group retirement plan, individuals must save enough on their own should they be among the half of retirees who will live longer than the average life expectancy. This DB pension longevity risk pooling feature generates a 10% cost savings.
– Are “ageless” and therefore can perpetually maintain an optimally balanced investment portfolio. In contrast, a typical individual investor must down shift investments over time to a lower risk portfolio of cash and bonds, sacrificing higher investment returns generated from stocks. This DB pension balanced portfolio feature generates an 11% cost savings.
– Achieve higher investment returns as compared to individual investors because they have lower fees and are managed by investment professionals. This lower fees and higher returns DB pension feature generates a 27% cost savings.

Older Americans: Inability to Repay Student Loans May Affect Financial Security of a Small Percentage of Retirees

Source: United States Government Accountability Office, GAO-14-866T, September 10, 2014

From the summary:
Comparatively few households headed by older Americans carry student debt compared to other types of debt, such as for mortgages and credit cards. GAO’s analysis of the data from the Survey of Consumer Finances reveals that about 3 percent of households headed by those aged 65 or older—about 706,000 households—carry student loan debt. This compares to about 24 percent of households headed by those aged 64 or younger—22 million households. Compared to student loan debt, those 65 and older are much more likely to carry other types of debt. For example, about 29 percent carry home mortgage debt and 27 percent carry credit card debt. Still, student debt among older American households has grown in recent years. The percentage of households headed by those aged 65 to 74 having student debt grew from about 1 percent in 2004 to about 4 percent in 2010. While those 65 and older account for a small fraction of the total amount of outstanding federal student debt, the outstanding federal student debt for this age group grew from about $2.8 billion in 2005 to about $18.2 billion in 2013.

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward

Source: University of Pennsylvania, Institute for Urban Research, November 11, 2014

On Nov. 11, Penn IUR hosted a dynamic discussion with leading practitioners and researchers on the complex fiscal issues facing cities, focusing on the legacy issues of the funding of pensions, and looking forward to strategies that support financial sustainability.

Speakers included Robert Inman, Richard King Mellon Professor of Finance, Professor of Business Economics & Public Policy, Professor of Real Estate, The Wharton School, University of Pennsylvania; Mathew McCubbins, Professor of Law and Political Science, Duke Law; Amy Monahan, Julius E. Davis Professor of Law, University of Minnesota Law School; Joshua Rauh, Professor of Finance, Stanford Graduate School of Business and Senior Fellow, Hoover Institution, Stanford University; Richard Ravitch, former Lieutenant Governor of New York; and James Spiotto, Managing Director, Chapman Strategic Advisors LLC; and Marcia Van Wagner, Vice President/Senior Credit Office, States Team, Moody’s Investors Service. Panels will be moderated by Olivia Mitchell, Professor of Business Economics and Public Policy and Executive Director of the Pension Research Council, The Wharton School; and Robin Prunty, Managing Director, Standard & Poor’s Public Finance Ratings. This event was co-sponsored by Next City and made possible with support from Melanie and Lawrence C. Nussdorf. …

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward (Part 1)

Urban Fiscal Stability and Public Pensions: Sustainability Going Forward (Part 2)

Retirement Benefit Decisions by City and County Governments

Source: Robert L. Clark, Melinda Sandler Morrill, Matthew Anderson, and Aditi Pathak, Center for State and Local Government Excellence, Issue Brief, November 2014

From the summary:
This brief is the second of a three-part series that analyzes employee participation in primary and supplemental retirement plans, retiree health care benefits, and Social Security in 20 large cities and counties across the country.

· Workers who work a full career in their city or county can expect a retirement income of between 45 and 80 percent of their pre-retirement income.
· Career employees of local governments who participate in Social Security can expect retirement income replacement rates of 20 to 30 percentage points higher than employees whose governments do not participate in Social Security.
· These and other variations mean that many local workers will need to be disciplined about participating in savings plans, outside of their primary plans, to meet their retirement security goals.

The Middle-Class Squeeze: A Picture of Stagnant Incomes, Rising Costs, and What We Can Do to Strengthen America’s Middle Class

Source: Jennifer Erickson, Center for American Progress, September 24, 2014

From the summary:
This report provides a snapshot of the American middle class and those struggling to become a part of it. It focuses on six key pillars that can help define security for households: jobs, early childhood programs, higher education, health care, housing, and retirement. Each chapter is both descriptive and prescriptive—detailing both how the middle class is doing and what policies can help it do better….

Chapters include:
Early childhood
Higher education
Health care

15th Annual Transamerica Retirement Survey – A Compendium of Findings About American Workers

Source: Transamerica Institute, TCRS 1200-0814, August 2014

From the summary:
Results from the 15th Annual Transamerica Retirement Survey show American workers’ retirement readiness and expectations. The study is one of the largest and longest-running of its kind, and is a robust, nationally representative survey conducted by an independent research company. The large sample enables TCRS to delve into comparisons across many demographics, which can be found in the full survey results report, “A Compendium of Findings About American Workers.”

Reports from the 15th annual survey include: “Three Unique Generations with Very Different Retirements Ahead of Them: Baby Boomers, Generation X and Millennials,” which offers comparisons among the three generations; “Millennial Workers: An Emerging Generation of Super Savers,” which explores the youngest group of workers and spotlights their strides toward retirement readiness; and “Generation X Workers: Retirement Reality Bites Unless Answers Are Implemented,” which delves into the retirement readiness of the “401(k) Generation” and offers suggestions to help them reach their retirement goals.

2014 National Cash Balance Research Report

Source: Kravitz, 2014

• The Cash Balance Plan market surged 22% versus a 1% increase in number of 401(k) plans: Despite a strengthening economy, the 401(k) market remained flat between 2011 and 2012, the most recent year for which IRS data is available. In contrast, the number of Cash Balance Plans grew 22%, surpassing industry projections of a 15% annual increase.
• Cash Balance Plans now make up 25% of all defined benefit plans, up from 2.9% in 2001: The rise of Cash Balance Plans coincides with steady decline in traditional defined benefit plans, a topic explored in more detail on page 3 of this report.
• Small and mid-size businesses are driving Cash Balance growth: 87% of Cash Balance Plans are in place at firms with less than 100 employees; the highest growth is in those with 25 or fewer employees.
• Companies more than double contributions to employee retirement savings when adding a Cash Balance Plan: The average employer contribution to staff retirement accounts is 6.3% of pay in companies with both Cash Balance and 401(k) plans, compared with 2.6% of pay in firms with 401(k) alone.
• California and New York have the most plans, while the fastest growth is in Texas and Florida: California and New York account for 23% of all Cash Balance Plans, but many other regions demonstrate faster growth in adopting new plans.
• Actual Rate of Return plans gain popularity: IRS regulations released in 2010 allow many alternatives to traditional safe harbor rates. Many larger Cash Balance Plans are now using “Actual Rate of Return” to reduce investment risk for the employer. …

…In just over a decade, Cash Balance Plans have increased from less than 3% to 25% of all defined benefit plans. Traditional defined benefit plans have been steadily declining since the mid-1980s, due to a complex array of risk issues, runaway costs, and major changes in workforce demographics. Some larger corporations converted existing defined benefit plans to Cash Balance, while hybrid plans also became increasingly popular with small to mid-size businesses….