The Future of Public Pension

8/20/2019 The Future of Public Pension

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The Future of Public Pensions

National Press FoundationJune 10, 2015

Speaker: Gre !ennis


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The Pe" #haritable Trusts

• More than 40 active, evidence-based research projects and campaigns

• Projects include public safety, immigration, elections, transportation, pensions, andstate tax incentives

• All follo a common approach! data-driven, inclusive, and transparent

Pe"$s Public Sector %etire&ent S'ste&s Pro(ect

• "esearch since #00$ includes %0-state trends on public pensions and retireebenefits, including funding, investments, governance, and employee preferences

• &echnical assistance for states and cities since #0''


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)*er*ie"

• Pension (unding and )nvestments

• *ase +tudy! Pennsylvania

• &rends in "eform

• Principles for (iscal +ustainability and "etirement +ecurity


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Pension Fundin and +n*est&ents


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The Gro"in Gap in State Pension Funds

20122011201020092008200720062005200420032002200120001999199819971,000,000,000,000

1,500,000,000,000

2,000,000,000,000

2,500,000,000,000

3,000,000,000,000

3,500,000,000,000

Assets Liabilities

$Billions

Sources: State and pension plan CAFRs and pension plan actuarialvaluations


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Fiscal ealth and -iscipline .cross States

Sources: State and pension plan CAFRs and pension plan actuarialvaluations

INCREASING FISCAL DISCIPLINE

NJ

PA

CT

IL

KY

CA

WA

95%

50%

-

– WV

NC –

WI –

– TN

INCREASING FISCAL DISCIPLINE

I N C R E A S I N G F

I S C A L

H E A L T H – ME

50%


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+n*est&ents / e' Trends:!ore in Stocks and ess in onds

234: Alternatives

504:uities


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+n*est&ents / e' Trends:+ncreased %isk Pre&iu&


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+n*est&ents / e' Trends:+ncreased se of .lternati*es

6Fees a*e .lso +ncreased b' 3047


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#ase Stud': Penns'l*ania


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Penns'l*ania Pensions: . 89 S"in in 13 ;ears /Fro& 820 Surplus to 85 -ebt

Sources: SERS and PSERS actuarial valuations and CAFRs. As of 1/26/15, te SERS 2!1" A# is not $et availa%le.


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P.$s Pension S'ste&: Fro& Surplus to Gro"inFundin Gap

'..$ '../ '... #000 #00' #00# #00 #004 #00% #001 #00$ #00/ #00. #0'0 #0'' #0'# #0'

0

#0,000

40,000

10,000

/0,000

'00,000

'#0,000

'40,000

'10,000

2iabilities Assets

8illions

3 e n

e f i t , n h a n c e m e n t s

f o r *

u r r e n t , m p l o y e e s

%econition of


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.ll Three %atin .encies -o"nraded Penns'l*aniain 201>

&Penns$lvania faces 'scal pressures in te for( of a structurall$un%alanced %ud)et, depleted reserves, and a rapidl$ )ro*in) pension cost %urden follo*in) $ears of underfundin) and (ar+etdriven invest(ent declines. Continued ina%ilit$ to address teseconcerns, or *orsenin) of an$ of tese conditions, over te nearter( could tri))er furter ne)ative ratin) action.- Fitc

-ate Prior %atin Ne" %atin

!ood'$s $7#47'4 Aa# Aa

Fitch .7#7'4 AA AA-

S?P .7#%7'4 AA AA-


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#0'0 #0'' #0'# #0' #0'4 #0'% #0'1 #0'$ #0'/ #0'. #0#0 #0#' #0##

80

8#,000

84,000

81,000

8/,000

8'0,000

8'#,000

P. has been >@th in !akin %eAuired #ontributions B Steep +ncreases toGet ack on Track Cill #ontinue to #ro"d )ut )ther Go*ern&ent Spendin

Actual 7 Projected +tate Pension *ontributions ormal *ost

Amorti9ation Payment 5under Act '#06 +hortfall to Annual "euired *ontribution

Millions

8% billion increase

%isin Pension #osts in Penns'l*ania


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#urrent #onsiderations in Penns'l*ania6&ultiple proposals are bein e*aluated7

• Maintaining commitment to fully fund pension promises

: 3enefit changes to ne or;ers ill not have a significant impact on currentpension debt

• Managing investment ris; and investment fees

• valuating benefit changes based on cost predictability and retirement security


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Trends in %efor&


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e' Takea"a's

• There are no panaceas: (iscal health and retirement security depend on fundingpolicy and practices< ven ell-funded states have ta;en steps to improve


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Pension Pro&ises in )ther States / No )ne SiDe Fits.ll

WA:• 95% funded• Optional !b"id plansta"ted in 1978

NE:• #ited f"o& '( toas balane plan in2002

• (an)e f"o& '( as toi&p"o*e o"+e""eti"e&ent seu"it!

UT:• ,!b"id o" '( option fo" neo"+e"s

• -i.ed e&plo!e" ont"ibution of10%

TN:• 95% funded• ,!b"id plan fo" ne o"+e"s• /otal e&plo!e" ont"ibution of 9%• #t"on) fundin) p"aties and ostont"ol featu"es on 'B

WI:• 99% funded 'B plan

• -ull A( pa!&ent &ade sine 2003• (OLA benets adusted based onfundin)

MI:• #tate e&plo!ees a"e in a

'( plan teae"s a"e in a!b"id• nfunded liabilit! fo"le)a! 'B plan as )"onto o*e" $30B

ME:• (onstitutional a&end&entfo" full fundin) in 1997

• &p"o*ed fundin) f"o&

63% to 80% sine 1997

WV:• -"o& 1997 t"ou) 2013put in &o"e tan "eui"edont"ibution

• &p"o*ed fundin) f"o&45% to 65% sine 2000

RI:• 2011 "efo"&t"ansitioned o"+e"s to!b"id plan

• nde"funded despite&a+in) A( pa!&entsin "eent !ea"s

• efo"& "eduedpension debt b!app"o.i&atel! $3billion

KY:• #tate plan ust 23% funded ita isto"! of &issed pa!&ents

• 2013 "efo"& in"easedont"ibutions

• e o"+e"s in as balaneplan

NC:• -inal a*e"a)e sala"! 'B plan• -undin) d"opped to 94%folloin) :"eat eession butno pi+in) up

Twenty-two states have implemented a hybrid, cash balance, or defined contribution plan for some workers Fourteen states have implemented alternative desi!ns thatare mandatory for certain !roups of workers, while ei!ht states have plans that workers may choose as an option to the traditional defined benefit plan"Aspects of the Rhode #sland reform are bein! liti!ated


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%etire&ent Securit' Principles

o one-si9e-fits-all solution, but ke' principles can guide any reform process

• Fiscal sustainabilit' principles

• *ommit to fully funding and paying for pension promises<

• Manage investment ris; and cost uncertainty<

• (ollo sound investment governance and reporting practices

• %etire&ent securit' principles

• &arget sufficient contributions and savings to help put employees on a path to asecure retirement<

• )nvest assets in professionally managed, pooled investments ith lo fees andappropriate asset allocations<

• Provide access to lifetime income in retirement<


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uestionsH


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.ppendi


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• +ince #00, PA has made

only 40F of its annualreuired contributions 5A"*6

• PA ran;s 4.th in A"*payments in recent years

• B+ Average 5excluding PAand G6 H /$F

Penns'l*ania$s #ontribution Shortfalls

80


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Plan T'pe -efinitions

• -efined enefit Plan 6-7: traditional pension plan ith a fixed retirement income

benefit based on age, years of services, and or;erIs salary

• -efined #ontribution Plan 6-#7: 40'5;6-style plans ith retirement benefits basedon accumulated employer and employee contributions, and returns on thoseinvestments

• 'brid Plan: combines elements of =3 and =* plans

• +tac;ed Jybrid! =3 plan is the primary benefit up to specified income level, then=* covers additional higher income for employees above the threshold

• +ide-by-+ide Jybrid! All employees get both smaller =3 and a =* benefit thateach apply to their entire salary

• #ash alance Plan 6#7: portable, pooled, professionally-managed pension planith a guaranteed minimum annual investment return

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The Future of Public Pension