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Retirement Funding Status and Trends: Rough Seas Ahead

Explore the current economic landscape impacting state and local government retirement plans, with insights on fiscal constraints, workforce challenges, and unfunded liabilities. Discover trends, funding status, and solutions for sustaining retirement security.

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Retirement Funding Status and Trends: Rough Seas Ahead

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  1. Retirement Funding Status and Trends: Rough Seas Ahead Elizabeth Kellar, President/CEO Center for State and Local Government Excellence www.slge.org May 19, 2010

  2. The Current Economic Picture • Sustained fiscal constraints for states and localities • Looming workforce challenges • Unfunded liabilities • Federal deficit looms • Major changes ahead

  3. The Perfect Storm

  4. 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

  5. http://www.cbpp.org/files/9-8-08sfp.pdf [Center on Budget and Policy Priorities]

  6. State and local governments feel the squeeze The current human resource reality

  7. 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

  8. Who has a pension? From: Current Population Survey

  9. Retirement Delays

  10. Research Team Alicia H. Munnell, Jean-Pierre Aubry, and Laura, Quinby Center for Retirement Research at Boston College The Status of State and Local Plans in 2009

  11. 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

  12. Public and Private Plans Invest about 70% of their assets in equities Were 80-90% funded

  13. 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%

  14. 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.

  15. Where do we go from here?

  16. 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?

  17. Political Issues • Generation equity • Transparency • Management challenges with lower tiers of benefits for new hires • Hybrid plans • Competition with other demands • Who pays?

  18. 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?

  19. For a copy of Center’s free research publications, visit: www.slge.org

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