...We review how 2012 impacted hiring, pensions, retirement and unions as well as make some predictions for 2013....
]]>As a county administrator dealing every day with the aftereffects of spikes in pension obligation expenses, I welcome the debate called for in New York State Comptroller Thomas P. DiNapoli's PAR Perspective, "Retirement Security for Americans and the Role of Defined-Benefit Pension Plans" (July/August 2012).
Although Comptroller DiNapoli makes a call for the protection of defined-benefit pension plans and sounds the warning bell against 401(k)-style plans--and defines this as the singular pension issue of news accounts on the sustainability of public pensions--I believe that the financial obligations themselves, imposed on local government as a state-directed mandate in New York and countless other states, is the crucial issue for public officials and should be the central question that shapes the debate on public pension systems.....I contend that the core issue is not the fiscal health of public pension systems, but the sustainability of those local governments that fund obligations with taxpayer dollars.
]]>From the abstract:
This report reviews the current and future role of defined contribution plans for state and local government employees and the governments that provide the retirement benefit.
The brief's key findings are:
- The "backloaded" benefit structure of public sector defined benefit plans favors long-tenure workers over short-tenure workers.
- However, when a defined benefit plan is combined with either Social Security or a defined contribution plan, the degree of backloading is reduced.
- Not surprisingly, then, the analysis shows that public workers with either Social Security or a defined contribution plan are less likely to stay until retirement age.
- Giving workers more flexibility to switch jobs leads to better employment matches.
...For both current and future retirees, an important source of additional income in retirement is an employment-based retirement plan. Therefore, understanding the percentage of workers currently participating in an employment-based retirement plan provides critical insight into retirees' likely future financial status.
In 2011, the percentage of workers participating in an employment-based retirement plan was essentially unchanged from a year earlier. Specifically, the percentage of all workers participating in an employment-based retirement plan moved from 39.6 percent in 2009 to 39.8 percent in 2010 to 39.7 in 2011, while the percentage of full-time, full-year wage and salary workers ages 21-64 (those most likely to be offered a retirement plan at work) saw a slight decline, from 54.5 percent in 2010 to 53.7 percent in 2011. While the overall level of participation was slightly downward, various categories of workers experienced increases in 2011....
See also:
summary
From the summary:
Our nation is on the brink of a retirement crisis that could have severe consequences for both future retirees and society as a whole. The steady erosion in the voluntary employer-sponsored retirement system has made it more difficult for workers to save for retirement. This crisis will not only impact retirees, but the next generation of workers, who will be left with the tab when federal, state, and local governments are forced to expand to help millions of additional elderly Americans who will be living in poverty...
...In some of the most populous states, the share of uncovered workers has risen more dramatically than the national average. This alarming trend is a call to action for state and local policymakers who want to prevent old age hardship by ensuring all workers can invest adequately, efficiently, and safely for their own retirement....
...All workers need a supplemental retirement plan that invests their savings efficiently with low costs, earns a secure and sufficient rate of return, and preserves savings for retirement. Therefore, the policy challenge is to expand access to individual account-based retirement plans and to address the critical failures in the existing system by making a new retirement savings vehicle available that meets three key criteria for retirement income security:
- Helps workers make adequate retirement account contributions and prevents early withdrawals.
- Provides low-cost, quality investment vehicles that are professionally managed and helps shield individual workers from investment and market risks.
- Provides a lifetime guaranteed stream of income at retirement.
Creating a nationwide, individual retirement plan that incorporates the goals of adequate contributions, safe and appropriate investments, and lifetime income, would efficiently and practically solve the upcoming retirement crisis. But ifthe nation's policymakers won't act, each state can tailor the State Guaranteed Retirement Account plan--which meets all of the above criteria for an efficient and adequate retirement savings plan--to meet their unique needs and to secure retirement income for each state's workforce....
...Given the current state of retirement income security in the United States, we propose states offer all workers a voluntary, low-fee, low-risk, retirement plan to help boost savings for retirement....State Guaranteed Retirement Accounts (State GRAs) are individual "cash balance" accounts where benefits at retirement are based solely on contributions and returns. A cash balance plan is an already-existing type of defined benefit pension plan that incorporates some features of a defined contribution plan....
]]>From the summary:
This report analyzes the retirement policies of the U.S. corporations leading the "Fix the Debt" campaign, which is calling for reduced spending on senior citizens' benefits as part of a deal on the national debt.
A major player in the national debt debate, the "Fix the Debt" campaign, is arguing that cuts to Social Security and Medicare are necessary to avoid economic disaster. Meanwhile, the corporations leading this campaign are contributing to Americans' retirement insecurity by funneling enormous sums into their CEO retirement accounts while underfunding their employee pension funds.
Key findings:
- The 71 Fix the Debt CEOs who lead publicly held companies have amassed an average of $9 million in their company retirement funds. A dozen have more than $20 million in their accounts. If each of them converted their assets to an annuity when they turned 65, they would receive a monthly check for at least $110,000 for life.
- The Fix the Debt CEO with the largest pension fund is Honeywell's David Cote, a long-time advocate of Social Security cuts. His $78 million nest egg is enough to provide a $428,000 check every month after he turns 65.
- Forty-one of the 71 companies offer employee pension funds. Of these, only two have sufficient assets in their funds to meet expected obligations. The rest have combined deficits of $103 billion, or about $2.5 billion on average. General Electric has the largest deficit in its worker pension fund, with $22 billion.
From the summary:
Outlays for Social Security totaled a little under $800 billion in fiscal year 2012, equal to about 5 percent of gross domestic product and one-fifth of federal spending. Of the 56 million people who currently receive Social Security benefits, about 70 percent are retired workers or their spouses and children, and another 11 percent are survivors of deceased workers; all of those beneficiaries receive payments through the Old-Age and Survivors Insurance (OASI) component of Social Security. The other 19 percent of beneficiaries are disabled workers or their spouses and children; they receive Social Security's Disability Insurance (DI) benefits.
Related:
As The Population Ages, Social Security's Spending Is Projected To Outpace Its Tax Revenues
Source: Congressional Budget Office (CBO), October 2012
Supplemental Data For CBO's 2012 Long-Term Projections For Social Security
Source: Congressional Budget Office (CBO), October 2012
The political economy of the recovery is making the United States even more unequal than it was during the bubble years. Incomes fell across the board during the crisis: median family income is 6.3% below what it was in 2001. But the top 1% garnered 93% of income growth in the first year of recovery. Housing, still the main source of wealth for middle-income families, remains depressed while stocks are close to pre-crash highs. Moreover, the drive for more tax cuts for the wealthy continues. And policy initiatives to cut Social Security, Medicare, and Medicaid would weaken the safety net even as it is most needed.
A spate of attacks on state and local public-sector pensions now threatens to make inequality even more entrenched and painful, and to undermine both short- and long-term economic growth.
The power of labor is dead center in this agenda. Despite a long-term decline in workers covered by union contracts, unions have over 16 million members: they are still the social force most capable of combating the assault on workers' incomes and militating for greater equality. Crippling their political power therefore remains both a tactical and a strategic objective on the right. With only 6.9% of workers in the private sector covered by union contracts, versus 37% in the public sector, public-sector unions are bearing the brunt of the attacks. And public pensions are the battering ram.
]]>A growing number of workers are realizing they will not get retiree health care from their employer after they stop working, according to a new report by EBRI. While earlier research found little impact from reductions in coverage on current retirees, EBRI finds that initial changes employers made to retiree health benefits affected future retirees as opposed to then-current retirees. Over time, more and more retirees have "aged into" those program changes, resulting in the greater impact found in more recent studies.
See also:
Summary
Press release
From the abstract:
The Oregon Public Employees Retirement System (PERS) is a hybrid pension plan that provides employees the security of a defined benefit (DB) pension plus the option to receive instead retirement benefits based on a defined contribution-style (DC) retirement account. We use PERS administrative data for 1990 to 2003 to study the effect of this hybrid design on employers' costs and employees' retirement-timing decisions. We have four findings. First, the option built into PERS is costly for employers to provide. Ex post, average retirement benefits are 49% higher in the hybrid plan than they would have been in a traditional DB plan. For the typical retiree, simulations show that our ex post estimate lies between the 50th and 75th percentiles of the ex ante distribution. Second, the hybrid plan distorts employees' retirement timing decisions relative to a traditional DB plan. Looking across benefit formulas, we find that as an employee's DC benefit increases above her DB benefit, so does the probability that she retires before the normal retirement age. Third, we find that retirement timing decisions respond to two sources of exogenous variation in the level of the DC benefit. Finally, we find evidence of peer effects in that employees respond more strongly to their own retirement incentives when more of their coworkers face similar incentives. The retirement waves that result from employees seeking to avoid declines in pension benefits are likely to impose significant administrative costs on employers.
The brief's key findings are:
The National Retirement Risk Index (NRRI), based on newly released Survey of Consumer Finances data, shows that over half of households may be unable to maintain their standard of living in retirement. Between 2007 and 2010, the NRRI jumped by 9 percentage points due to:
• the bursting of the housing bubble (4.5 percentage points);falling interest rates (2.2 percentage points);
• the ongoing rise in Social Security's Full Retirement Age (1.6 percentage points);
• and continued low stock prices (0.8 percentage points).
The hardest hit households were those nearing retirement and those with high incomes.
From the summary:
A new research brief examines the workforce impacts of existing defined benefit (DB) pension plans to assess the likely effects of a switch to defined contribution (DC) individual accounts or cash balance plans.
Public employers would attract a different labor force if they switched retirement benefits away from pensions. Public employees would be less committed to employers and thus less likely to invest in nontransferable skills that are critical to delivery of taxpayer services.
Employee turnover would increase under individual DC accounts and cash balance plans. These types of retirement benefits no longer defer compensation into the future and thus offer fewer economic incentives for employees to stay with public employers.
Moving from a pension structure would result in higher cost for public employers and employees because of higher investment and administrative costs for alternative retirement plans.
Public employers and employees overwhelmingly choose to stay with pensions rather than moving to alternative benefits when faced with a choice, illustrating the high value of pensions to public sector employers and employees.
See also:
- Press Release
- PowerPoint
From the abstract:
In recent years, there has been a growing angst about the state over retirement security. What seemed a golden age of retirement 15 years ago has become increasingly costly and precarious, and there is limited understanding of the underlying causes for the changing environment. The discussion here explores the evolution of public policies and demographics that have driven the different experience of successive generations under both Social Security and employer-sponsored pensions. Social Security has become much more expensive and less efficient over time because it is financed on a pay-as-you-go basis. Employer-sponsored pension costs have exploded in recent years because we largely deferred the funding of the baby boom generation's retirement benefits to the latter part of their working lives. This result was driven by a combination of policy appetites to keep income tax rates low and variations in financial market performance. The need to bring new policies to bear on our situation is delineated, and a description of potential policies to address current and future generations' income security is provided.