barber pension
TRANSCRIPT
-
7/30/2019 Barber Pension
1/48
An Afternoon With Pensions
Randy Barber
Center for Economic Organizing
6935 Laurel Ave., #204
Silver Spring, MD [email protected]
202.531.6201
1
mailto:[email protected]:[email protected] -
7/30/2019 Barber Pension
2/48
Why Were HereRESOLUTION NO. 26
Pension Bargaining Education
WHEREAS, many IBEW local unions face increasing pressure from employersduring contract negotiations to eliminate traditional defined pension plans for new
employees and/or freeze the defined pensions of existing employees; and
WHEREAS, many employers are abandoning traditional defined pension plans
and replacing them with cash balance or 401K plans; and
WHEREAS, given the volatility of investment options available to the averageworker; and
WHEREAS, several studies predict that many workers will fall short of therequired replacement income needed to produce a secure retirement;
THEREFORE, BE IT RESOLVED that the IBEW International Office providelocal unions with information and training regarding the various kinds of pension plans
and retirement savings programs to assist in negotiations.
SUBMITTED BY:Local Union 199, Fort Myers, FL
Local Union 201, Beaver, PALocal Union 986, Norwalk, OHLocal Union 1200, Washington, DC
Resolution adopted at 38th International IBEW Convention, September 2011 2
-
7/30/2019 Barber Pension
3/48
Outline of Todays Presentation1. The Crisis in Retirement Income Security
2. An Overview of Basic Types of Private Sector Pension Plans
3. In-Depth Discussion of Defined Benefit and Defined Contribution PlanIssues
Discussion Q&A, Specific Situations, etc.
Some Suggested Topics:1. Analyzing Your Employers Plan
2. Just Say No (if you can)
3. If The Employer Wont Take No For An Answer
Additional Prepared Discussions:
Annex 1. Two IBEW-Sponsored Alternatives to Consider
Annex 2: Annual Funding Notices and Adjusted Target Funding AttainmentIssues
Annex 3: A Primer on Pension Freezes
3
-
7/30/2019 Barber Pension
4/48
The Fu ture of Pensions?
Single employer Defined Benefit (DB) plans in jeopardy. Increasingly relegated to shrinking unionized workforce.
Trend is towards Defined Contribution (DC) plans
generally. Shift costs and risks from employers to workers
Smaller pension than in DB plan
DC plans alone insufficient to provide for retirement
security. An IBEW-sponsored multi-employer plan may be a
viable alternative.
4
-
7/30/2019 Barber Pension
5/48
1. The Crisis In Retirement Security
5
-
7/30/2019 Barber Pension
6/48
NY Times Financial Columnist Admits Hes Been Had . . .
http://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocera 6
http://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocerahttp://www.nytimes.com/2012/04/28/opinion/nocera-my-faith-based-retirement.html?ref=joenocera -
7/30/2019 Barber Pension
7/48
Retirement Risk Index
Income Group 2004 2007 2009
All 43% 44% 51%
Low Income 53% 57% 60%
Middle Income 40% 40% 47%
High Income 36% 35% 42%
Percentage of households at risk at age 65 by income group. At risk = being unable to maintain pre-retirement
standard of living in retirement. Source: Center for Retirement Research, Boston College 7
-
7/30/2019 Barber Pension
8/48
Histor ical ly, Indu str ia l Countr ies Have Encouraged Wo rkers to
Rely On the 3 Legged Stool to Provide for Their Retirement
Source: Neil Gladstein, IAM Strategic Resources
8
-
7/30/2019 Barber Pension
9/48
Unfortunately, With Distressing Speed, the Pension
Leg o f the Three Legged Stoo l Is Vanish ing
9
-
7/30/2019 Barber Pension
10/48
http://ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdf 10
http://ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdfhttp://ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdfhttp://ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdfhttp://ebri.org/pdf/surveys/rcs/2012/EBRI_IB_03-2012_No369_RCS.pdf -
7/30/2019 Barber Pension
11/48
As Gallups Annual Survey Confirms: Employees
Expect to Wo rk Longer and Retire Later
Source: Gallups annual Economy and Personal Finance survey, conducted April 9-12.http://www.gallup.com/poll/154178/Expected-Retirement-Age.aspx
11
http://www.gallup.com/poll/154178/Expected-Retirement-Age.aspxhttp://www.gallup.com/poll/154178/Expected-Retirement-Age.aspxhttp://www.gallup.com/poll/154178/Expected-Retirement-Age.aspxhttp://www.gallup.com/poll/154178/Expected-Retirement-Age.aspxhttp://www.gallup.com/poll/154178/Expected-Retirement-Age.aspxhttp://www.gallup.com/poll/154178/Expected-Retirement-Age.aspx -
7/30/2019 Barber Pension
12/48
http://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdf
The Emp loyee Benefi t Research Inst i tute Has Tracked the Same
Data, by Expected Retirement Age
12
http://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-02-rcs-12-fs2-expect.pdf -
7/30/2019 Barber Pension
13/48
http://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdf
And Workers Confidence In Being Able to Retire
Com fortably Has Decl ined
13
http://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdfhttp://ebri.org/pdf/surveys/rcs/2012/fs-01-rcs-12-fs1-conf.pdf -
7/30/2019 Barber Pension
14/48
In Every Retirement Cohort, the Percentage of those
Remaining in the Work forc e has Moved Up Steadi ly
http://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hp 14
http://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hphttp://economix.blogs.nytimes.com/2012/05/02/retirement-slipping-farther-and-farther-away/?hp -
7/30/2019 Barber Pension
15/48
http://www.pensionrights.org/publications/statistic/why-pensions-are-important 15
http://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-importanthttp://www.pensionrights.org/publications/statistic/why-pensions-are-important -
7/30/2019 Barber Pension
16/48
How Much is Enough?
A frequently used rule of thumb is that aReplacement Ratio of about 75% of pre-retirement income is the minimum required
for an adequate retirement (post-retirementincome/pre-retirement income = replacementratio)
Many argue that this level is inadequate,
certainly for lower-wage workers (more highlycompensated employees may require a lowerreplacement ratio)
16
-
7/30/2019 Barber Pension
17/48
http://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-plans 17
http://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-planshttp://www.pensionrights.org/blog/can-we-call-it-comebackfor-db-plans -
7/30/2019 Barber Pension
18/48
http://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdf
18
http://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdfhttp://www.towerswatson.com/assets/pdf/mailings/Towers-Watson-February-2012-Insider.pdf -
7/30/2019 Barber Pension
19/48
2. Overview o f Basic Types o f
Private Secto r Pens ion Plans
Defined Benefit
Defined Contribution So-Called Hybrid Plans
19
-
7/30/2019 Barber Pension
20/48
Types o f Pens ion Plans Defined Benefit (DB)
Guaranteed, known monthly annuity for life (althoughmany offer a lump sum payout option) Typically include disability, death and survivor benefits Employer bears the risk of underperformance (and the
benefits of overperformance) Poor investment returns combined with frequent low
contribution levels and historically low interest rates(discount rates) have resulted in many plans beingseriously underfunded
The pain of significantly increased required employercontributions will likely be ameliorated over time by the
combination of resulting increased assets and lower statedliabilities as interest/discount rates return to normal levels Insured by the Pension Benefit Guarantee Corporation
(within legislated maximums) 2006 Pension Protection Act introduced major new funding
requirements and benefit restrictions under some
circumstances 20
-
7/30/2019 Barber Pension
21/48
Types of Pens ion Plans (cont inued)
Defined Contribution (DC) Basically, tax-advantaged savings plans Individual account plans; now typically 401(k) plans, but
historically included other types of plans such as supplementalsavings, money purchase, profit sharing, and stock bonus plans
Contributions from employer and/or employee Some provide for employee-only contributions Some have specified automatic employer contributions (typically
expressed as a percentage of payroll) Some also include an employer-match formula an employer matches
employee contributions (typically 25%, 33%, 50% or 100% of employeecontributions) up to a specified maximum (a 50% match of employeecontributions up to 6% of pay is a common formula)
After the contributions are made, all risks are borne by the
employee and the amount available for retirement is completelydependent on the account balance Expenses and fees are typically borne by the employee as well DC Plans have historically underperformed DB Plans to such an
extent that DB Plans have been shown to be able to produce thesame benefit for a 46% lower cost (see NIRS slides below)
Not guaranteed by the PBGC 21
-
7/30/2019 Barber Pension
22/48
Types of Pens ion Plans (cont inued)
So-Called Hybrid Plans Increasingly, employers are proposing and/or implementing
plans which combine both DB and DC features, but with typicallymuch lower DB benefits
Examples would be retaining the DB plan, but with lower futurebenefit accruals, and adding a 401(k) plan on top (usually withquite low employer contributions but some sort of employeecontribution match)
Another example would be a Cash Balance Plan (either as areplacement for the existing DB plan or in combination witheither the existing DB plan or a DC plan). While complex, keyelements of a Cash Balance Plan include:
They are actually DB plans, but are presented as if they were DC plans
(notional employer contribution levels and account balances) While DB plan benefits are typically based on career-end salary levels,
Cash Balance plans are career average plans which frequentlyprovide much lower retirement benefits for full-career employees
While required to offer a monthly life annuity as the default option, theytypically feature lump sum distributions
22
-
7/30/2019 Barber Pension
23/48
DB v. DC in Private Sec to r
2009
DC DB
% of Plans 93% 7%
% of Active Participants 80% 20%
% of Assets 60% 40%
For Canada, 59% of plans were DB; 80% of participants were in DB; 90%of assets were in DB plans.
23
-
7/30/2019 Barber Pension
24/48
Again, With Distressing Speed, the Pension
Leg o f the Three Legged Stool Is Vanish ing
24
-
7/30/2019 Barber Pension
25/48
Although the Number o f Def ined Benefi t Pens ion Plan
Part icipants Remained Stable Throu gh 2009(We Havent Seen 2010-on Data Yet, Thou gh . . .)
25
-
7/30/2019 Barber Pension
26/48
3. In-Depth Discussion of Defined Benefitand Defined Contribution Plan Issues
26
-
7/30/2019 Barber Pension
27/48
Why Def ined Benef it Pens ions A re Good
For Our Society
People with pensions are less likely to be at risk inretirement
Features of Defined Benefit (DB) pensions enhanceretirement income adequacy
DB pensions provide broad-based coverage DB pensions provide secure money for retirement
DB pensions provide professional asset management
DB pensions provide a lifetime income
DB pensions provide special protections for spouses
Recent trends in DB pension coverage raise concern Many Americans will fall short in retirement without DB
pensions
27
-
7/30/2019 Barber Pension
28/48
28
-
7/30/2019 Barber Pension
29/48
29
-
7/30/2019 Barber Pension
30/48
30
-
7/30/2019 Barber Pension
31/48
31
-
7/30/2019 Barber Pension
32/48
32
-
7/30/2019 Barber Pension
33/48
Goldm an Sachs: Funded Status Has Started to Recover
White Paper 2012, Pension Review First Take: Highlights, Challenges and Changes for 2012, Goldman Sachs AssetManagement, http://www.gsam.com 33
http://www.gsams.com/http://www.gsams.com/ -
7/30/2019 Barber Pension
34/48
Pension Expense Grow th Lags Recovery in Funded Rat ios
34
-
7/30/2019 Barber Pension
35/48
What workersneed Roughly 10 times annual pay 15-18% of salary every year for 30 years
What workers actually have Typically 2-3 times annual pay.
Average deferral rate for workers who makeless than $100,000 per year just over 5%.
According to the 2007 Federal ReserveSurvey of Consumer Finances (the most
recent full survey available) The median 401(k)/IRA balance for participants
approaching retirement was only $78,000 and thiswas before most of the stock market crash.
401kPlansArentGett ingtheJobDone
35
Wh A DB Pl S M h M
-
7/30/2019 Barber Pension
36/48
Why Are DB Plans So Much More
Eff ic ient than DC Plans In Provid ing
Retirement Benefi ts?
http://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdf 36
http://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdfhttp://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdfhttp://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdfhttp://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdfhttp://www.nirsonline.org/storage/nirs/documents/better_bang_for_the_buck_ppt.pdf -
7/30/2019 Barber Pension
37/48
37
-
7/30/2019 Barber Pension
38/48
NIRS Methodology
NIRS modeled a population of 1,000 femaleteachers who work for 30 years - their finalsalary is $50,000
They defined a target retirement benefit about $2,200/month at age 62, replacingabout 53% of final salary with the DB pensionbenefit (Social Security would be in additionto this)
They then calculated the cost to fund thisbenefit through a DB plan structure, thenthrough a DC plan structure
38
-
7/30/2019 Barber Pension
39/48
39
-
7/30/2019 Barber Pension
40/48
40
-
7/30/2019 Barber Pension
41/48
41
-
7/30/2019 Barber Pension
42/48
Sing le v . Mu lt i -Emp loyer DBs
Multi-Employer Collectively bargained
Jointly administered bylabor and management
No one employercontrols plan
Risk is pooled
Investment gainstypically benefit
participants
Portable amongparticipating employers
Single Employer Sometimes collectively
bargained
Administered solely by
Employer trustees Risk on one employer
Investment gains/over-funding typically benefitsemployer
Not portable in U.S.
42
-
7/30/2019 Barber Pension
43/48
Multi-employer plan funding issues
Segal & Co. green/yellow/red zone graphic
43
-
7/30/2019 Barber Pension
44/48
Cash Balance Plans
Repeating/Elaborating on points from earlier slide Cash Balance Plan -- either as a replacement for the existing DB
plan or in combination with either the existing DB plan or a DC plan(earlier versions of Cash Balance Plans had major ERISA problems,mostly eliminated now and wont be described here).
While complex, key elements of a Cash Balance Plan include: They are actually DB plans, but are presented as if they were DC plans
(notional employer contribution levels and account balances)
Actuary determines required employer contribution based on benefit accruals,funding levels, and regulations (just like any other DB plan)
PBGC coverage just like any other DB plan
While DB plan benefits are typically based on career-end salary levels, CashBalance plans are career average plans which frequently provide much lower
retirement benefits for full-career employees
While required to offer a monthly life annuity as the default option, they typicallyfeature lump sum distributions
Many more details . . . Can be discussed later if desired (just ask)44
-
7/30/2019 Barber Pension
45/48
Discussion
45
-
7/30/2019 Barber Pension
46/48
Resources and
Acknowledgements
46
-
7/30/2019 Barber Pension
47/48
Selected Resources
General information Pension Rights Center - www.pensionrights.org National Institute on Retirement Security -
www.nirsonline.org Employee Benefit Research Institutewww.ebri.org
Government agencies Pension Benefit Guarantee Corporation (PBGC)
www.pbgc.gov U.S. Department of Labors Employee Benefits
Security Adminstrationwww.dol.gov/ebsa/
Tools Form 5500swww.freerisa.com Annuity estimatorswww.immediateannuities.com
(one of many)47
http://www.prc.org/http://www.nirsonline.org/http://www.ebri.org/http://www.pbgc.gov/http://www.dol.gov/ebsa/http://www.freerisa.com/http://www.immediateannuities.com/http://www.immediateannuities.com/http://www.freerisa.com/http://www.dol.gov/ebsa/http://www.pbgc.gov/http://www.ebri.org/http://www.nirsonline.org/http://www.prc.org/ -
7/30/2019 Barber Pension
48/48
Acknowledegements
Many of the ideas and slides contained inthis presentation were provided by . . . Neil Gladstein, Director, IAM Strategic Resources
Department The Pension Rights Centerwww.pensionrights.org
The National Institute on Retirement Securitywww.nirsonline.org
The Employee Benefit Research Institutewww.ebri.org
48
http://www.pensionrights.org/http://www.nirsonline.org/http://www.ebri.org/http://www.ebri.org/http://www.nirsonline.org/http://www.pensionrights.org/