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NASRA Publishes Report on Risk Sharing in Public Retirement Plans

In January 2019, the National Association of State Retirement Administrators (NASRA) released their report, In-Depth: Risk Sharing in Public Retirement Plans. The report is intended to help enhance knowledge and awareness of various current options that are being utilized to design and finance retirement benefits.  Specifically, the report discusses shared risk features that are incorporated into public pension plans and also presents nine case studies of plans that have shared risk structures.

The types of risk sharing discussed in the report include:

  • Variable employee contribution rates;
  • Contingent or limited cost-of-living adjustments;
  • Cash balance hybrid plans; and
  • DB-DC hybrid plans.

In addition, the brief discusses the key risks faced by public retirement plans and the efforts to share the risks between employers and employees through changes in plan designs.  These risks include:

  • Investment Risk – the risk that actual investment returns underperform the expected rate of return;
  • Longevity Risk – the risk that individuals will outlive their retirement assets; and
  • Inflation Risk – the risk that the purchasing power of money will decline over time.

According to the report, “Shared risk plans are intended to increase the predictability of financial outcomes resulting from both positive and negative events affecting plans, sponsors and beneficiaries…. A primary consideration for any retirement plan sponsor is which types of risk, and in what proportion, are most appropriately borne by individuals, and which risks are best borne collectively, by institutions.”

The report is available here.