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Retirement Funding Status and Trends: Rough Seas Ahead

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. The Current Economic Picture. Sustained fiscal constraints for states and localities Looming workforce challenges

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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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