The Right Way to Reform Public Pensions

Defined contribution plans may well have a role in the public sector, but in combination with, not as an alternative to, defined benefit plans. The hybrids introduced in Georgia, Michigan, and Utah reflect sponsors’ recognition of the need to balance the risks to employees and the risks to taxpayers.

These hybrids consist of slimmed-down defined benefit plans and defined contribution plans operating in “parallel.” A preferable approach may be a “stacked” arrangement. Meaningful defined benefit plans could remain as a secure base for the typical public employee, and defined contribution plans could be “stacked” on top to provide additional retirement income for those at the higher end of the pay scale. Such an approach would ensure a more equitable sharing of risks and would also prevent headlines generated by the occasional inflated public pension benefit.

Pensions reform – interactive map

Pensions reforms

This map shows changes to state and local government pension plans over the past 10 years. State governments are represented by blue icons, and local governments are represented by red icons.

Created on Oct 7, 2010


A ROLE FOR DEFINED CONTRIBUTION PLANS IN THE PUBLIC SECTOR

A ROLE FOR DEFINED CONTRIBUTION PLANS IN THE PUBLIC SECTOR

In the wake of the financial crisis, policymakers have been talking about shifting from defined benefit plans to defined contribution plans in the public sector.

Three states – Georgia, Michigan, and Utah – have taken action, joining the 10 states that had introduced some form of defined contribution plans before 2008.

Interestingly, these new plans are “hybrids” that combine elements of both defined benefit plans and defined contribution plans. Such an approach spreads the risks associated with the provision of retirement income between the employer and the employee.

This brief provides an update on defined contribution initiatives in the public sector and then discusses whether the hybrids that have been introduced are the best way to combine the two plan types.


Pension Plan Reform in Virginia

Pension Plan Reform in Virginia

Government retirement plans are unsustainable in many people’s opinions. In some states and cities, retirement funds are causing a huge budgetary problem because the costs are rising and unpredictable. These retirement systems were set up decades ago when pressure on government expenditures were much less, the average age of a retired worker when he or she died was many years earlier, and when medical advances had not enhanced the quality and longevity of life for our retired community as is the case today.

Over the years, government retirement has continued as a defined benefits program while the private and non-profit sectors of our economy have moved away from those retirement programs and toward defined contribution plans. Defined contribution plans shift the burden of retirement planning to the employee and away from the employer (the government which is funded through our taxes). Some countries have moved away from defined benefit systems entirely.

As Virginia begins to consider changes in the retirement system of state employees, this paper will hopefully add to that discussion and offer a viable suggestion to strengthen the system for both the state worker and the taxpayers, who not only pay the salaries for these workers but also are on the hook for the promised payments in a defined benefits system.

L'étude est très intéressante, quelles sont les conséquences de convertir les fonds de pension publics de PD vers les CD, où un système hybride, le seul problème, nous avons attendu trop longtemps pour faire une conversion.

On va être obligé de réduire les attentes et tout probablement réduire aussi les prestations qui sont émises, devant la crise économique qui se prépare qui est la crise : DES DETTES SOUVERAINES.


State and Local Pension Fund Falling Further Behind

THE FUNDING OF STATE AND LOCAL

The funding status of state and local pensions continued to deteriorate in 2010, reflecting a mix of both positive and negative trends, according to a new issue brief published by the Center for Retirement Research.

The ratio of assets to liabilities for the CRR’s sample of 126 plans declined from 79 percent in 2009 to 77 percent in 2010. A contributing factor was declining state contributions, which tumbled to only 78% of required payments.

On the bright side, stock market valuations increased markedly last year.


 

  1. gravatar

    # by Anonyme - 17 septembre 2011 à 01 h 24

    You have really interesting blog, keep up posting such informative posts!

  2. gravatar

    # by Anonyme - 26 septembre 2011 à 05 h 18

    Thx for this great information that you are sharing with us!!!