Category Archives: Pensions

The Rising Cost of Yesterday: Metro Area Pension Costs and the Factors that Drive Them

Source: Bureau of Governmental Research, November 2012

From the abstract:
In The Rising Cost of Yesterday: Metro Area Pension Costs and the Factors that Drive Them, BGR examines 18 defined benefit pension plans available to local government workers in Jefferson, Orleans and St. Tammany parishes (the Plans). The report tallies the costs the Plans impose on local government entities in the three parishes, and compares the pension benefits they offer to those available to private sector workers and other state and local government workers across the U.S.
See also:
Press release

Local Government Employment, Benefits, and Retirement Issues

Source: ICMA Conference Briefing, Fall 2012

With some governments in their fourth year of pay and hiring freezes, according to surveys by the Center for State and Local Government Excellence (SLGE), local governments are facing a wide range of work -force challenges. Their workforce is aging and many still have a pay freeze and are adjusting retirement and health care benefits, according to SLGE’s 2012 survey report: State and Local Government Workforce: 2012 Trends. At the same time, the pace of layoffs has slowed, with 28 percent reporting layoffs this year compared with 43 percent in 2009.

The top workforce issue cited by survey respondents in 2012 is the public perception of government workers. Issues that continue to rank as most important are: retaining staff for core services, addressing employee morale and workload problems, staff development, and reducing employee health care costs.

Public Plans and Short-Term Employees

Source: Alicia Munnell, Jean-Pierre Aubry, Joshua Hurwitz, Laura Quinby, National Bureau of Economic Research, NBER Working Paper No. 18448, October 2012
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From the abstract:
Public sector defined benefit pension plans are based on final earnings. As such, these plans are back-loaded; those with long careers receive substantial benefits and those who leave early receive little. The analysis consists of three parts. The first section discusses the design of state and local defined benefit plans, documents the extent to which traditional public sector final earnings plans are back-loaded, and explores the extent to which the incentives may reflect the preferences of employers. The second section shows how participation in final earnings plans affects the lifetime resources of state and local workers of various tenures compared to private sector workers. The third section presents plan-level data on the flows of participants out of the plan by age and tenure and explores the extent to which plan design – specifically, vesting periods, mandatory participation in a defined contribution plan, and Social Security coverage – affects the probability of vesting and the probability of remaining to the earliest full retirement age once vested. The findings suggest that complete reliance on delayed vesting and final earnings plans results in minimal benefits for most short-service public employees. Hence, the recent trend towards hybrid arrangements is a positive development not only for risk sharing between taxpayers and participants but also for a more equitable distribution of benefits between short-term and career employees.

'After' Math: The Impact and Influence of Incentives on Benefit Policy

Source: Nevin Adams, Employee Benefit Research Institute (EBRI), EBRI Issue Brief, No. 374, August 2012

From the abstract:
[T]he next Congress will, of necessity, address issues . . . proposals to modify or reduce existing tax preferences for health and retirement benefits. In that context, EBRI’s 70th policy forum focused on a range of topics, from tax policy and design incentives, to international trends and current drawdown rates, and how they might influence, and be impacted by, future events. This paper recaps the presentations and panel discussions at that event. Among the key points made at the policy forum:

– As important as retirement and health benefits are to Americans’ short- and long-term economic security, the sheer size of their tax preferences makes them vulnerable in the battles over deficit reduction and tax reform. Private-sector health benefits alone rank as the largest single “tax expenditure” in the federal budget.
– Retirement benefits are a tax deferral rather than an exclusion from income — meaning the federal government will eventually recoup the forgone revenue. This distinguishes retirement plan deferrals from other tax exclusions.
– Because the tax expenditure on 401(k)-type plans is a deferral, rather than an exclusion, reducing the tax expenditure in the current period also reduces the positive stream of revenue in the future.
– The biggest difference between tax-expenditure estimates and revenue estimates for scoring tax reform is that the latter incorporates taxpayer behavior; tax expenditure estimates do not.
– Ten percent or fewer of those ages 55-60 are making withdrawals from their IRA, compared with 80 percent of those 71 and older.
– On a historical basis, depending on the period measured, pre-retiree balances in defined contribution retirement plans double about every eight to nine years.
– Employer match levels seemed to have a bigger impact on older workers, but automatic enrollment seems much more significant in terms of getting younger employees to participate in retirement plans.
– Common challenges for underfunded retirement systems worldwide include the need to increase the state pension age and/or “normal” retirement age for full benefits; to promote higher labor-force participation at older ages; to encourage or require higher levels of private saving; to increase retirement coverage of employees and/or the self-employed; and to reduce savings “leakage” prior to retirement.

The Pension Coverage Problem in the Private Sector

Source: Alicia H. Munnell, Rebecca Cannon Fraenkel and Joshua Hurwitz, Center for Retirement Research at Boston College, IB#2012-16, September 2012

The brief’s key findings are:
– Only 42 percent of private sector workers age 25-64 have any type of pension coverage in their current job.
– This coverage gap creates two types of problems:
More than a third of households end up at retirement with only Social Security.
Workers who move in and out of coverage accumulate only modest amounts in their 401(k)s.
– Simplifying pension plans has not solved the coverage problem.
– Recently, both federal and state policymakers have put forth proposals to cover the uncovered.
– But given the low level of Social Security benefits and modest 401(k) balances, any new tier should be universal.

2011 Annual Survey of Public Employment & Payroll

Source: U.S. Census Bureau, August 23, 2012

From the press release:
In March 2011, there were 16.4 million full-time equivalent employees working in state and local governments in the U.S., down 1.4 percent from 2010. According to estimates released today by the U.S. Census Bureau, the majority of these employees (8.9 million) worked in education, followed by those working in hospitals (964,381), police protection (923,951) and corrections (717,940).

These estimates come from the 2011 Annual Survey of Public Employment & Payroll. The survey shows totals for state and local government full-time and part-time employment and details employment by government function at the national and state level. To arrive at the full-time equivalent employee calculation, the number of full-time employees is added to the number of hours worked by part-time employees divided by the standard number of hours for a full-time employee.

Public Employment and Public Pensions: A 20-Year Comparison
Source: Erika Becker-Medina and Paul Reyes, United States Census Bureau, Random Samplings blog, August 26, 2013

Physical Job Demand and Early Retirement

Source: Sepideh Modrek, Mark Cullen, Working paper, presented at 4th Annual Joint Conference of the Retirement Research Consortium, August 2-3, 2012

In this study we explore whether higher physical job demand predicts earlier (normal) retirement once we account for health and wealth. We then examine whether the timing of pension eligibility, which is determined by tenure and age, is more important in inducing retirement for those with more physically demanding jobs. Finally, we examine whether pension payouts or wealth accumulation induces retirement differentially for those with more physically demanding jobs….. Our study relies on an extraordinarily rich administrative data source from a large multi-site aluminum-manufacturing employer, Alcoa. …Those in the lowest demand jobs are estimated to work 16% longer relative to those in the medium demand, and those in high demand jobs retire 17% earlier relative to the medium demand group. We also find that that recent injury history is associated with earlier retirement. Finally, while we find evidence of a strong ‘pull’ effect of pension eligibility, pension payouts and 401K-wealth accumulation, there is limited evidence of a difference by job demand, though we find that those in physically demanding jobs who participate in the 401K schemes retire earlier.
Hard Labor Spells Earlier Retirement
Source: Boston College, Center for Retirement Research, Financial Security Project, Squared Away Blog, August 14, 2012

End of Retirement

Source: Donald L. Barlett and James B. Steele, Investigative Reporting Workshop, August 12, 2012

Pensions were once an integral part of the American dream, a pledge by corporations to their employees: For your decades of work, you can count on retirement benefits. Not everyone had a pension, but from the 1950s to the 1980s, the number of workers who did rose steadily — until 1985. Since then, more and more companies have walked away from pensions. Before today’s workers reach retirement age, decisions by Congress favoring moneyed interests will drive millions of older Americans — most of them women — into poverty and push millions more to the brink.

2011 Annual Survey of Public Pensions: State-Administered Defined Benefit Data

Source: U.S. Census Bureau, August 9, 2012

From the press release:
The nation’s state-administered defined benefit retirement systems totaled $2.5 trillion in cash and investment holdings in 2011, a 14.6 percent increase from $2.2 trillion in 2010, according to new statistics from the U.S. Census Bureau. Earnings on investments were $410.6 billion, up from $291.1 billion in 2010. These statistics come from the 2011 Annual Survey of Public Pensions: State-Administered Defined Benefit Data, which provides an annual look at the financial activity and membership information for the nation’s 222 state-administered public-employee retirement systems, including revenues, expenditures, investment holdings, membership and beneficiaries. Statistics are shown for the nation and individual states. This information includes actuarial liability statistics, which project the total obligation required to cover costs for providing pensions to former and present employees.

See also:
Summary Report
Source: Erika Becker-Medina, U.S. Census Bureau, G11-ASPP-ST, August 2012