Industry News

On September 18, 2019, the Center for State & Local Government Excellence (SLGE) and AARP published a new report, Proactive Pension Management: An Elected Official’s Guide to Variable Benefit and Contribution Arrangements.  This guide is intended to provide policymakers and stakeholders with an overview of variable benefit and contribution arrangements for public pension plans, which may possibly be considered to incorporate variable components in benefit or contribution management.

According to the report, “Under [variable benefit and/or variable contribution] arrangements, a pre-set formula drives occasional adjustments in the plan to maintain long-term stability.”  The report discusses how variable arrangements may help to improve flexibility, risk and gain sharing, and potential benefits to the plans and beneficiaries while preserving their defined benefit pension system.

In addition, the report includes six case studies of variable arrangements that have been implemented in Colorado, Iowa, South Dakota, Utah, Virginia and Wisconsin. The case studies presented show that variable arrangements “enable all stakeholders to understand how, when, and to what extent contributions or benefits might be subject to formula-based changes, and as a result, enable them to plan for the long-term.”

The report concludes, “the example of these states shows that there is no one single path forward.  Variable contributions, variable benefits, adjustable COLAs, shared risk, and auto-escalation are all changes worth exploring and may be part of a healthy, proactive strategy for short-term predictability of costs and benefits, long-term financial sustainability, and appropriate balancing of risk among employers, employees, and retirees.”  It adds, “effective pension oversight also requires accurate forecasting of financial and workforce trends.” 

The guide is available here.