Recently in Pensions Category

Source: Natasha Chart, Today's Workplace Blog, August 27th, 2010

Despite defined benefit (DB) pensions, like the ones public employees get, being more economically efficient [pdf] and offering better returns, private employers have mostly switched to 401(k) plans, or defined contribution (DC) plans [pdf], because they're cheaper. Between 1979 and 2001, the portion of the workforce covered by defined benefit pensions dropped by half. By 2008, only 20 percent of private workers had such a pension.

Businesses saved a lot of money by either switching to low cost 401(k) plans or dumping their pension obligations on the government [pdf]. Did they use their savings to create jobs? Not lately. These days, businesses are firing more people than they need to and sitting on the cash.
See also:
More Salvos in the False "Class War" on Public Pensions
Source: Amy Traub, Today's Workplace, August 26th, 2010

Source: Ronald Snell, National Conference of State Legislatures, September 2009

The National Conference of State Legislatures surveyed legislative staff and public pensions
system staff of the 50 states and the District of Columbia in July and August, 2009, on their
provisions for retirement benefits for correctional system employees. Thirty-one responses were
received.

Source: Ron Snell, State Legislatures, Vol. 36 no. 7, 2010

Lawmakers spent the past five years shoring up public retirement plans. The battering state budgets have taken in the past few years has drawn more public attention to another huge financial issue: public pension systems.

Source: Beth Almedia, Journal of Pension Benefits, July 2010

From the summary:
The Journal of Pension Benefits has published a NIRS analysis of why defined benefit pensions have proven to be a durable feature of compensation for state and local governments.

As we look across the nation, we see governments making a number of changes to their retirement plans--increasing contributions, adjusting retirement ages, and modifying benefit design. However, governments' commitment to defined benefit pensions has generally not wavered. That has been a surprise to some who have called for the public sector to follow the path of the private sector, away from DB pensions and toward greater reliance on defined contribution plans.

But the resilience of DB pensions in the public sector is less surprising to those who understand that these plans are ideally suited to serve the interests of all of the key stakeholders involved--taxpayers, employees, and public employers. Here are three reasons why DBs have proven to be such a durable feature of the compensation landscape in state and local government.

Source: Alicia H. Munnell, Richard W. Kopcke, Jean-Pierre Aubry, and Laura Quinby, Center for Retirement Research at Boston College, SLP #11, June 2010

From the abstract:
To measure the liability of a pension plan requires discounting a stream of promised future benefits to the present. For public sector plans, what discount rate to use in this calculation is a subject of great debate. State and local plans generally follow an actuarial model and discount their liabilities by the long-term yield on the assets held in the pension fund, roughly 8 percent. Most economists contend that the discount rate should reflect the risk associated with the liabilities, and given that benefits are guaranteed under most state laws, the appropriate discount factor is a riskless rate, roughly 5 percent, as discussed below. Thus, the economists' model would produce much higher liabilities than those currently reported on the books of states and localities. The intensity of the debate is fueled by the assumption that the magnitude of the liabilities dictates the size of the funding contribution and even how the pension fund assets should be invested.

Source: Joshua D. Rauh, National Bureau of Economic Research (NBER), May 15, 2010

From the abstract:
This paper analyzes the flow of state pension benefit payments relative to asset levels and contributions. Assuming future state contributions fund the full present value of new benefits, many state systems will run out of money in 10-20 years if some attempt is not made to improve the funding of liabilities that have already been accrued. The expected shortfalls raise the possibility that the federal government will be faced with a decision as to whether to bail out states driven to insolvency by their pension programs.

Source: New America Foundation, May 19, 2010

How can Americans recover retirement security, and what role should pensions play going forward? On May 19, the New America Foundation's Next Social Contract Initiative and the University of California Retirement Security Institute hosted a diverse group of academics, professionals, and policymakers for a forum that sought to identify the "new normal" for retirement security, examine the troubled state of public pensions, and consider best practices for reform.
See also:
- Introduction
- Pension Design Innovation: Challenges to Pension Environment
- Connell Presentation
- Ghilarducci Presentation
- Rauh Presentation
- Review of Retirement Funding Status and Trends
- Brainard Presentation
- Kellar Presentation
- Best Practices
- Cleary Presentation
- Mason Presentation
- Sledge Presentation

Source: Amy Monahan, Education, Finance & Policy, Vol. 5, 2010, Minnesota Legal Studies Research No. 10-13

From the abstract:
There is significant interest in reforming retirement plans for public school employees, particularly in light of current market conditions. This paper presents an overview of the various types of state regulation of public pension plans that affect possibilities for reform. Nearly all of the various approaches to public pension plan protection taken by the states have significant flaws. These flaws include a lack of clarity regarding what plan changes the relevant legal standard will allow, combined with either too much or too little protection for plan participants. This paper argues that states would be well served to adopt a contractual approach to public pension benefits, but to limit that contractual protection to accrued benefits. This approach is clear, protects legitimate participant interests, and preserves an employer's ability to respond to changing economic conditions.

Source: Hofstra Labor and Employment Law Journal, Volume 26, No. 2, Spring 2009

Articles include:
- The Paternalistic Ideology of ERISA and Unforgiving Courts: Restoring Balance Through a Grand Bargain - Edward A. Zelinsky
- The Next Generation of Preemption Cases: State Regulation of 401(K) Plans - Debra A. Davis
- ERISA Remedies, Welfare Benefits, and Bad Faith: Losing Sight of the Cathedral - Peter K. Stris
- A Regulatory Vacuum Leaves Gaping Wounds--Can Common Sense Offer a Better Way to Address the Pain of ERISA Preemption? - Andrew L. Oringer
- Leaving Well Enough Alone: Reflections on the Current State of ERISA Remedial Law - Thomas P. Gies & Jane R. Foster
- Where Are We Going, and Where Should We Be in Ten Years? - Jonathan Barry Forman
- ERISA Misrepresentation and Nondisclosure Claims: Securities Litigation Under the Guise of ERISA? - Clovis Trevino Bravo
- Safeguarding Employee Stock Ownership Plans: Insurance as Assurance - Lauren E. Berson & Nicholas L. Cushing

Source: Pew Center on the States, February 2010

From the summary:
A new pensions and retiree health care report from the Pew Center on the States, The Trillion Dollar Gap: Underfunded State Retirement Systems and the Road to Reform, shows why states must take strong action now--or taxpayers will suffer later.

To a significant degree, the $1 trillion reflects states' own policy choices and lack of discipline:
• failing to make annual payments for pension systems at the levels recommended by their own actuaries;
• expanding benefits and offering cost-of-living increases without fully considering their long-term price tag or determining how to pay for them; and
• providing retiree health care without adequately funding it.

See also:
• Download the state fact sheets or use Trends to Watch to track national data and access previously unreleased data.
• Download Susan Urahn's and Ronald Snell's PowerPoint slide from the Webinar or listen to audio of the event. (MP3, 25.6 MB)