proactive pension management webinar v1007d · behavioral economics, harnessing the power of...
TRANSCRIPT
Proactive Pension Management
Tuesday, October 8, 2019
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
2
Center for State and Local Government Excellence
Promote excellence in local and state governments so they can attract and
retain talented public servants.
slge.org/retirement
publicplansdata.org
Defined Benefit vs. Defined Contribution
DB (Traditional) DC (401K-style)
Contributions Employer: Actuarially determinedEmployee: 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
Pension Structures
Pension Structures
Pension Structures
Pension Structures
FundedRatio
https://www.slge.org/resources/update-on-the-funded-status-of-state-and-local-pension-plans-fy2018
Investment Earnings
https://www.slge.org/resources/state-and-local-pensions-a-long-term-view
Investment Earnings
https://www.slge.org/resources/state-and-local-pensions-a-long-term-view
Assumed return:8.00% 2001
7.25% 2016
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• Actuarial funded ratio: 100%
Innovation: Variable COLA
• Annual COLA based on funded status of the plan
• Upheld by South Dakota Circuit Court
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
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
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
Key Takeaways
• Behavior economic tools can work• Importance of high-quality communication
and education• New plan:
– Helping to improve overall funding ratios – Reducing employer contribution costs
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
Additional Perspectives:
National Conference of State Legislatures
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
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
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
SOURCES AND CONTACTS
Visit www.ncsl.org/pensions for retirement reports, legislative summaries, webinars and presentation materials prepared by NCSL.
Anna Petrini, [email protected], 303‐856‐1527.
