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Proactive Pension Management
Tuesday, October 8, 2019
SLIDE 2 Gerald Young, Senior Research Associate, Center for State and Local Government Excellence Paula Sanford. Ph.D., Senior Public Service Associate, Carl Vinson Institute of Government, University of Georgia Anna Petrini, Senior Policy Specialist Employment, Labor and Retirement Program, National Conference of State Legislatures
Webinar Presenters
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Center for State and Local Government Excellence Promote excellence in local and state governments so they can attract and retain talented public servants.
SLIDE 4 slge.org/retirement
SLIDE 5 publicplansdata.org
SLIDE 6 Defined Benefit vs. Defined Contribution
DB (Traditional) DC (401K-style) Contributions Employer: Actuarially determined Employee: Fixed Fixed contributions, possibly w/ match to employee share Value of Benefit Fixed formula Depends on account balance in retirement Investment Responsibility Employer Employee Risk Pension plan and government sponsor Employee
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Pension Structures
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Pension Structures
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Pension Structures
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Pension Structures
SLIDE 11 Funded Ratio
https://www.slge.org/resources/update-on-the-funded-status-of-state-and-local-pension-plans-fy2018
SLIDE 12 Investment Earnings
https://www.slge.org/resources/state-and-local-pensions-a-long-term-view
SLIDE 13 Investment Earnings
https://www.slge.org/resources/state-and-local-pensions-a-long-term-view Assumed return: 8.00% 2001 7.25% 2016
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SLIDE 15 Case Studies: South Dakota
- Defined benefit plan: 1.8% benefit multiplier
- Employers and employees contribute 6% ea.
- Multiple employer plan
- Total membership:
88,106
- Actuarial value of assets:
$12.2 billion
100%
SLIDE 16 Innovation: Variable COLA
based on funded status
South Dakota Circuit Court
SLIDE 17 Key Takeaways
- Great relationship with the state legislature
- Work with all stakeholders when proposing
plan changes
- SDRS has a fiduciary responsibility to every
stakeholder
- All stakeholders are responsible for a
financially sustainable system
SLIDE 18 Case Study: Virginia
- Hybrid Plan: 1.0% benefit multiplier for
defined benefit plan plus defined contribution components
- Employees pay 4% of salaries for DB plan,
employers pay remaining needed
- Multiple employer plan
- Membership in Hybrid Plan: 85,179
- Effective date: 2014 for new employees
SLIDE 19 Innovation: Auto-Escalation
- With variable defined contribution account,
employers match employee contribution
- AE employee contribution 0.5% every three
years
- AE ends when employee contribution is 4%
- First AE occurred in 2017 – highly successful
SLIDE 20 Key Takeaways
- Behavior economic tools can work
- Importance of high-quality communication
and education
– Helping to improve overall funding ratios – Reducing employer contribution costs
SLIDE 21 Lessons Learned
- Open and honest communication with all
stakeholders
- No one group should bear the burden for
addressed reduced funding ratios
- Need variability in the funding and benefit
formula to address changes in funded status
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Additional Perspectives:
National Conference of State Legislatures
SLIDE 23 LEGISLATIVE OPPORTUNITIES AND CHALLENGES
Reduce uncertainty Budgeting Recruitment/retention Protect benefits Behavioral economics, harnessing
the power of inertia
Consume less legislative
time/expertise
Contribute to plan sustainability Effectively communicate with
stakeholders?
Appropriate risk allocation among
stakeholders?
Tie legislators’ hands? Can be politically expedient Some stakeholders continue to seek
legislative changes
Other process concerns? Changes fashioned in crisis mode
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BENEFIT RISK: COLAS
COLAS = standard, but very expensive benefits Recent reforms include contingencies Delay onset Apply to only a portion of benefit Link to investment performance/actuarial soundness Policies vary dramatically => some retirees going without COLAs for
long stretches
Legal challenges
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TRENDS IN VARIABLE CONTRIBUTION AND BENEFIT ARRANGEMENTS
Fewer major reforms since period immediately after Great Recession Pension plan changes increasingly => risk‐sharing arrangements Uncertain whether legislators will leave recent rash of reforms to
play out
Or shifting economic/demographic trends will => uptick New data tools, including stress testing No one‐size fits all solution
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SOURCES AND CONTACTS
Visit www.ncsl.org/pensions for retirement reports, legislative
summaries, webinars and presentation materials prepared by NCSL.
Anna Petrini, anna.petrini@ncsl.org, 303‐856‐1527.
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Email : info@slge.org Twitter: @4GovtExcellence #ProactivePensions
