Category Archives: Retirement

Executive Retirement Benefits: Survey of Executive Retirement Benefit Practices

Source: Towers Watson, Benefits Data Source, February 2014

From the summary:
– On average, executive benefit plans deliver an additional 5% to 7% of earnings in annual retirement income to a mid-level executive.
– About half of organizations that sponsor employer-paid nonqualified plans offer only pure restoration executive benefits.

Supplemental Retirement Plans Offered 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, February 2014

From the summary:
– Fifteen of the local government employers offer only one type of plan; all 20 local government employers in the study offer at least one 457 savings plan.
– Most plans allow loans.
– Employers match employee contributions in just four plans.
– Employees need more financial literacy and good information about plans to make optimal decisions when they have more choices to make.
– More choices for employees may not be better if the quality of the plans, in terms of fees and investment options, is inferior to the quality of a more restricted access model.

Using Automatic Escalation in Public Sector Retirement Plans to Increase Savings

Source: Paula Sanford, Center for State and Local Government Excellence, Issue Brief, March 2014

From the summary:
This brief looks at how automatic escalation features can help public employees save more for retirement, and the challenges and opportunities state and local governments may encounter as they consider automatic escalation policies.

As states and localities continue to modify their retirement packages, public employees may need to save more to ensure that they have an adequate retirement income.

This is the first study to examine automatic escalation options for public sector retirement plans and supplemental defined contribution plans.

Using interviews, case studies, and a review of academic and practitioner research, the brief offers recommendations on how governments might incorporate an automatic escalation policy into their defined contribution retirement plans, including:
– Ensure that employee groups are part of the process in working with elected and appointed leaders who support an automatic escalation policy.
– Acknowledge that there is no uniform approach to automatic escalation policies. The policy should reflect a government’s unique workforce preferences and policy environment.
– Reduce or eliminate as many barriers to enrollment as possible.
– Communicate with employees about the benefits of the feature when it is adopted.
– Consider implementing it in conjunction with other features, such as automatic enrollment.

The report also includes case studies of successful implementation of automatic escalation in supplemental defined contribution plans for some public employees in Missouri, Ohio, and Virginia.

Is Pension Coverage a Problem in the Private Sector?

Source: Alicia H. Munnell and Dina Bleckman, Center for Retirement Research at Boston College (CRR), Issue Brief, IB#14-7, April 2014

The brief’s key findings are:
– Commentators question whether pension coverage is a serious problem, indicating that 80 percent have access to a plan.
– But this number refers to access – not participation – and to full-time workers in both the public and private sectors.
– A review of four household surveys and one employer survey finds that only about half of all private workers (age 25-64) are participating in a plan.
– So, yes, coverage remains a serious problem.

Symposium on State and Local Government Pensions

Source: Public Budgeting & Finance, Volume 33, Issue 3, Fall 2013
(subscription required)

Articles include:
Introduction: Symposium on State and Local Government Pensions
by Philip Joyce

In this issue, Public Budgeting & Finance presents new research on a topic of vital importance to the future of state and local finance. States and localities face substantial challenges in making good on promises to retirees—promises that cover both traditional defined benefit pensions as well as health care coverage. While imbalances in pension funding are a relatively old story, it is only since the Governmental Accounting Standards Board’s (GASB) requirement that states and localities disclose their Other Post-Employment Benefits (OPEB) liabilities that the funding gaps for health care benefits have become obvious.

Pension Reform in Atlanta: Funding Past Promises in an Uncertain Future
by Sarah Beth Gehl, Katherine G. Willoughby And Michael J. Bell

his research assesses state and local pensions in the U.S. Concerns of locally administered pensions are addressed; actions taken and possible reforms to these plans are noted. Then, recent pension reform in Atlanta, Georgia is examined. In 2009, Atlanta had the 12th lowest funding ratio for its general employee fund compared to all other city plans in Georgia. Atlanta’s story explains the depths of its pension problems, how the pension got into trouble and the changes necessary to advance fiscal sustainability. Such plans will require strict discipline by politicians, pension boards and financial managers, and tempering member expectations to reach sustainability.

Impact of Unfunded Pension Obligations on Credit Quality of State Governments
by Christine R. Martell, Sharon N. Kioko And Tima Moldogaziev

This study reviews the funding status of state-administered pension plans and their impact on state credit quality. As the fund ratio (actuarial assets/actuarial accrued liability) of state-administered pension plans decreases, states are more likely assigned a lower rating. Moreover, rating outlooks are sensitive to the fund ratio, especially for migration between stable and negative outlooks for states with lower fund ratios. These results are a timely pretest to the 2013/2014 implementation of GASB Statements No. 67 and 68, serving as a benchmark to assess whether new reporting requirements will yield information to alter the market’s response to unfunded pension liabilities.

The Impact of Budget Stabilization Funds on State Pension Contributions
by Travis St.Clair

Despite the shortfalls in public employee pension funds, there is little known about the effect of fiscal institutions on pension funding. This paper focuses attention on the link between pension contributions and budget stabilization funds (BSFs) over the period 1997–2008. It employs the Blundell–Bond (1998) estimator in order to address the concern that the deposit and withdrawal rules that drive the management of BSFs may be endogenous to state pension contributions. Empirical results suggest that BSFs with strict deposit rules are associated with higher pension contributions, while strict withdrawal rules are associated with lower contributions.

The Management of Defined Contribution Pension Plans in Local Government
by Gang Chen, Carol Ebdon, Kenneth A. Kriz And Olivier Maisondieu Laforge

Despite the growing importance of defined contribution pension plans in state and local governments, little research exists on how those plans are actually managed. Our study fills a gap in the literature through using a mixed-methods approach on a sample of local governments in Nebraska. We employ a mail-out survey to get broad-based information on DC plan administration throughout the state, and use face-to-face interview techniques on a subsample of plans to investigate the details of plan management. We find several deviations from promulgated best practices, and substantial variation in administrators’ knowledge of and role perception related to DC plans.

The Opportunity Cost of Public Funds: Concepts and Issues
by Jérôme Massiani And Gabriele Picco

This paper reviews the main conceptual issues regarding the notion of Opportunity Cost of Public Funds (OCPF) and its use in normative economics. Despite the importance of the mechanisms it illustrates, the OCPF still has received too marginal attention in public economics literature and is often handled with some definitional ambiguity. Our review indicates that the core of the notion lies in the deadweight loss and, to a minor extent, in administrative costs, while other aspects like crowding out are more controversial. Moreover, we argue that the financing mechanisms of the public expenditures should be considered for a proper analysis and quantification of OCPF and suggest that public expenditures are generally financed through the displacement of funds from alternative uses. We conclude with a review of available quantifications.

Assessing the Relationship Between Objective and Subjective Measures of Fiscal Condition Using Government-Wide Statements
by Craig S. Maher And Steven C. Deller

Government Accounting Standards Board (GASB) Statement 34 has been in effect for a decade yet there is limited research examining government-wide financial reporting data. This study builds on our ability to delve into the fiscal condition of Wisconsin counties during the Great Recession. The principal aims of the research are: (1) expand on works utilizing GASB 34 reporting requirements; (2) report on county administrators perceptions of fiscal condition; and (3) examine the relationship between subjective and objective measures of fiscal condition. We find little evidence that objective fiscal condition indices are related to subjective administrative assessments of fiscal condition.

Who Benefits from Pension Enhancements?

Source: Cory Koedel, Shawn Ni, Michael Podgursky, Education Finance and Policy, Early Access, Posted Online February 14, 2014
(subscription required)

From the abstract:
During the late 1990s public pension funds across the United States accrued large actuarial surpluses. The seemingly flush conditions of the pension funds led legislators in most states to substantially improve retirement benefits for public workers, including teachers. In this study we examine the benefit enhancements to the teacher pension system in Missouri. The enhancements resulted in large windfall gains for teachers who were close to retirement when the legislation was enacted. By contrast, novice teachers, and teachers who had not yet entered the labor force, were made worse off. The reason is that front-end contribution rates have been raised for current teachers to offset past liabilities accrued from the enhancements. Total teacher retirement compensation, net of contribution costs, is lower for young teachers today as a result of the enhancement legislation. Given sharp increases in pension costs in other states, this finding may generalize to young teachers in many other plans.

Looming Retiree Health-Care Costs? Let the Feds Help.

Source: Liz Farmer, Governing, March 12, 2014

As retiree health care costs soar, state and local governments would be wise to shift more of the burden to the federal government as they try to get a handle on their growing liabilities. An analysis by Moody’s Investors Service notes that growing health care liabilities pose an increasing credit risk for many municipal governments. States alone listed a total of more than $530 billion in unfunded “other post-retirement benefits” (OPEB) liabilities in 2012, Moody’s reports.

Aging America

Source: Al Jazeera America, America Tonight, 2014

With our senior population booming, America Tonight examines the problems and possibilities in the way we provide care. …

The silent army
Twenty-nine million Americans, or nine percent of the entire population, care for someone over the age of 74. Michael Okwu spends time with three women who have had to disrupt or suspend their lives to tend to an older loved one. From moving in with aging parents to putting a resistant father in a home, their stories offer glimpses of the decisions and strains born across the country by a largely invisible army.

The labor of care
As America’s elderly population balloons, so does the population of elder-care workers. Primarily women of color, these workers labor in isolation for meager pay and with few legal protections. We profile one woman, an immigrant from Barbados, who has been a domestic worker since she was 14. She details the enormous work of providing care, the frustrations of being unable to go to a movie, or even buy food, because of her salary, and the long, hard battle to get respect.

Seniors helping seniors
There is one group of Americans with the time on their hands to care for seniors in need: Younger, retired seniors. Christof Putzel follows Larry Davis, one representative of the growing seniors-helping-seniors movement, who fetches firewood for the elderly in his New Hampshire town, helps them winterize their homes and shovels their stoops. He wants to help them stay in their homes a little while longer, and hopes that when he needs it, someone might do the same for him.

For those who can’t find or afford human care for older loved ones, technology may end up filling the gap. Adam May visits some early adopters of elder-tech, from a group of siblings who check-in on their elderly mother with a telepresence robot, to homes wired up with sensors on cabinets, doorways and beds to allow for 24-hour monitoring. These technologies give hope for many families, but also force them to wrestle with the boundary between safety and privacy. …

Retirement Security in an Aging Society

Source: James M. Poterba, National Bureau of Economic Research (NBER), NBER Working Paper No. w19930, February 2014
(subscription required)

From the abstract:
The share of the U.S. population over the age of 65 was 8.1 percent in 1950, 12.4 percent in 2000, and is projected to reach 20.9 percent by 2050. The percent over 85 is projected to more than double from current levels, reaching 4.2 percent by mid-century. The aging of the U.S. population makes issues of retirement security increasingly important. Elderly individuals exhibit wide disparities in their sources of income. For those in the bottom half of the income distribution, Social Security is the most important source of support; program changes would directly affect their well-being. Income from private pensions, assets, and earnings are relatively more important for higher-income elderly individuals, who have more diverse income sources. The trend from private sector defined benefit to defined contribution pension plans has shifted a greater share of the responsibility for retirement security to individuals, and made that security more dependent on choices they make. A significant subset of the population is unlikely to be able to sustain their standard of living in retirement without higher pre-retirement saving.

Financial Security Scorecard: A State-by-State Analysis of Economic Pressures Facing Future Retirees

Source: Christian E. Weller, Nari Rhee, and Carolyn Arcand, National Institute on Retirement Security, March 2014

From the summary:
The Financial Security Scorecard: A State-by-State Analysis of Economic Pressures Facing Future Retirees finds states fall short in key areas measuring retirement readiness. …

This new analysis gauges the relative performance of the fifty states and the District of Columbia in three key areas: anticipated retirement income; major retirement costs like housing and healthcare; and labor market conditions for older workers.

The study is designed to serve as a tool for policymakers to help identify potential areas of focus for state-based policy interventions to improve Americans’ retirement prospects. …
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