Retirement Funding Status and Trends: Rough Seas Ahead
Elizabeth Kellar, President/CEOCenter for State and Local Government Excellence
www.slge.orgMay 19, 2010
The Current Economic Picture
• Sustained fiscal constraints for states and localities
• Looming workforce challenges
• Unfunded liabilities
• Federal deficit looms
• Major changes ahead
The Perfect Storm
The Not-So-Great Recession
• Economic downturn continues for state governments thru 2010 and 2011
• All sources of revenue are down: income, sales, property taxes
• Federal deficit looms
• Regional differences
http://www.cbpp.org/files/9-8-08sfp.pdf [Center on Budget and Policy Priorities]
THE CURRENT HUMAN RESOURCE REALITY
State and local governments feel the squeeze
Competing for Talent
• Good benefits help recruit and retain employees
• But reductions in benefits are today’s reality• 70% have increased employee contributions
to health care• 18% require new workers to contribute more
to pension plan; 8% increased years required to vest in plan
45.0%
11.0%
40.2%
2008 Private Sector
No pension plan at work
Pension plan at work, but not included
Included in pension plan at work
18.3%
8.9%
70.9%
2008 State and Federal Government
No pension plan at work
Pension plan at work, but not included
Included in pension plan at work
18.1%
8.1%
71.7%
2008 Local Government
No pension plan at work
Pension plan at work, but not included
Included in pension plan at work
Who has a pension?
From: Current Population Survey
Retirement Delays
The Status of State and Local Plans in 2009
Research Team
Alicia H. Munnell, Jean-Pierre Aubry, and Laura, Quinby
Center for Retirement Research
at Boston College
Key Findings
• Most pensions were over 80 percent funded in 2008
• In 2009, only 36 percent of plans studied were over 80% funded
• Most pension plans will not return to 80 percent funding levels by 2013 unless contribution levels increase
Public and Private Plans
• Invest about 70% of their assets in equities
• Were 80-90% funded
Crystal Ball Projections
• Most likely: 2010 actuarial reports will show assets equal to ~77% of promised benefits; by 2013, ratio will drop to 72%
• The pessimistic ratio for 2013 is 66%
• The optimistic ration for 2013 is 76%
What are plan sponsors doing?
• Louisiana extended the amortization period to 2040
• Vermont extended its funding period to 2039
• California expanded the corridor on the actuarial value of assets to moderate the required increase in the ARC.
WHERE DO WE GO FROM HERE?
The Public Debate
• What rewards are appropriate for a career of public service?
• Are years to vest in plan appropriate?
• How are new hires treated?
• What should the “normal” retirement age be?
Political Issues
• Generation equity• Transparency• Management challenges with lower
tiers of benefits for new hires• Hybrid plans• Competition with other demands• Who pays?
Government Retirement Plans Could Be Models for Private Sector
• Employees contribute to retirement
• Retirement security is a priority
• Take a long view
• Professional management assets are the norm
• Should private sector employees be allowed to buy into public plans?
For a copy of Center’s free research publications, visit:
www.slge.org