NCPERS Releases 2019 Public Retirement Systems Study

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NCPERS Releases 2019 Public Retirement Systems Study

On January 22, 2020, the National Conference of Public Employee Retirement Systems (NCPERS) released the results of its 2019 NCPERS Public Retirement Systems Study.  The comprehensive survey provides information on investment experience, actuarial assumptions, plan administration and operations, trends, innovations and best practices.

The key findings include: 

  • During 2019, the average funding levels (the value of the assets in the pension plan divided by an actuarial measure of the pension obligation) decreased slightly.  Average funding levels declined to 71.7% in 2019 from 72.6% in 2018. 
  • In 2019, the average investment return assumption was 7.24% compared to 7.34% in 2018.  About 82% of responding funds reported that they have reduced their actuarial assumed rate of return or are considering doing so in the future.  
  • About 51% of reporting funds have implemented or are considering implementing higher age and service benefit requirements, while 46% have increased employee contributions or are considering implementing that change in the future.
  • Employer contribution rates remained stable at 22% of payroll in 2019.
  • Overall, the reporting funds experienced solid returns, with the 5-year and 10-year average returns being close to or exceeding the assumed rate of return and the 20-year returns outperforming the assumed rate of return.  On average, 20-year returns were 11.2%, 10-year returns were 7.7%, 5-year returns were 7.1%, and 1-year returns were 4.5%, significantly lower than 13.4% reported in 2018.  Importantly, funds with a December fiscal year-end date experienced 1-year returns that were much lower than those closing at other times.
  • Pension funds reduced the cost of administering funds and paying investment managers to 55 basis points (or 55 cents per $100 invested) versus 60 basis points in 2018.  This is comparable to the average fee of 55 basis points for equity funds and 66 basis points average for hybrid funds.
  • In 2019, about 52% of plan sponsors offered a health plan or subsidy as compared with about 46% who offered a plan in 2018.  Of those offering a plan, about 61% of active members are eligible, 82% of retirees are eligible, and 61% of beneficiaries are eligible.  

The survey included 155 state and local government pension funds with more than 12.6 million active and retired members and total assets exceeding $1.4 trillion in actuarial and market value.  Of the pension funds surveyed, 62% were local government funds and 38% were state pension funds.

The report is available here.

CRR Publishes Brief on Social Security and Retirement Wealth

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CRR Publishes Brief on Social Security and Retirement Wealth

On January 22, 2020, the Center for Retirement Research at Boston College (CRR) published its issue brief, Social Security Is a Great Stabilizer.  The brief examines the importance of the effect of Social Security on the relative economic status of retirees by race and ethnicity.  Specifically, the analysis examines Social Security as a source of retirement wealth for whites, blacks, and Hispanics for five birth cohorts of those ages 51-56 between 1992 and 2016 based on data from the Health and Retirement Study (HRS).

Key findings include:

  • According to CRR, without Social Security, the retirement wealth held by white households averages 5 to 7 times the wealth of a minority household.
  • However, when adding in Social Security, the retirement wealth held by white households drops to about 2.5 times the wealth of a minority household.
  • Social Security has a comparable leveling effect across the distribution of wealth, which is significant for lower- and middle-income households.
  • Social Security reduces inequality since it covers almost all workers and has a progressive benefit design, which helps to make it the most equal form of retirement wealth since it provides much higher benefits relative to earnings for lower-wage workers than for higher-wage workers.

The brief concludes, “As policymakers begin to consider options to bring Social Security into fiscal balance, it may be worth considering the effect of any potential changes on the distribution of retirement wealth.  Some policies that would reduce benefits, such as increases in the Full Retirement Age, would tend to increase retirement wealth inequality.”

The brief is available here.

Commonwealth Fund Examines State Policies to Make Individual Market Health Coverage More Affordable

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Commonwealth Fund Examines State Policies to Make Individual Market Health Coverage More Affordable

On January 15, 2020, the Commonwealth Fund released its issue brief, States Work to Make Individual Market Health Coverage More Affordable, But Long-Term Solutions Call for Federal Leadership.  The brief examines various state policies designed to strengthen individual market health coverage and to help improve affordability.  The brief indicates that although individual markets in most states are stable, they continue to face continuing challenges.  Most states have adopted policy initiatives to improve comprehensive coverage affordability.  However, long-term solutions for improving health coverage will likely require a sustained and significant financial commitment from the federal government.

The brief concludes, “In 2020, states will continue to pursue reinsurance, respond to the effects of skimpy coverage products on their health insurance markets, and study other states that have undertaken broader reforms to bring comprehensive coverage within reach of all residents.”

The report is available here.

NIRS Publishes Report on Retirement Income Sources for Older Americans

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NIRS Publishes Report on Retirement Income Sources for Older Americans

On January 14, 2020, the National Institute on Retirement Security (NIRS) published its report, Examining the Nest Egg: The Sources of Retirement Income for Older Americans.  This report examines the sources of retirement income for older Americans to determine the number of older Americans that achieve the “three-legged stool” of retirement savings including: Social Security, a defined benefit pension, and individual savings (typically through a defined contribution plan).

In addition, the report identifies sources of retirement income that varies based on demographic characteristics including gender, race, and education.  The analysis also studies the effects of various sources of retirement income on poverty status and the likelihood of older Americans experiencing a hardship during retirement (i.e., food insecurity).

According to NIRS, the report finds that “a large portion (40 percent) of older Americans rely only on Social Security income in retirement while only a small percentage of older Americans (seven percent) receive income from Social Security, a defined benefit pension, and a defined contribution account.  Retirement income from these three sources is widely considered to be the ideal situation to ensure retirement security, particularly for the middle class.  Retirees with these three sources of income are far less likely to face poverty and economic hardship. “   

The report concludes, “Protecting, strengthening, and expanding Social Security should be a top priority for those who are interested in retirement security.”  It adds, “Defined benefit pensions continue to have an important role to play in reducing elder poverty.  Nearly a quarter of older persons receives income from a pension and defined benefit income meaningfully reduces the number of poor and near-poor older households.  It is clear from the data that pensions serve an important function in keeping working families in the middle class in retirement.”

The report is available here.

Groom Law Group Launches SECURE Act Resource Library

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Groom Law Group Launches SECURE Act Resource Library

On January 8, 2020, the Groom Law Group announced the launch of its SECURE Act Resource Library website.  The website provides information related to the key provisions of the Setting Every Community Up for Retirement Enhancement Act (the SECURE Act), which was enacted on December 20, 2019 as part of the Further Consolidated Appropriations Act, 2020. 

The resource library was designed to provide employers and retirement plan service providers with pertinent information for the Act’s nearly 30 retirement provisions.  It includes the legislation and related regulatory guidance, key deadlines, required compliance measures, as well as insights and key takeaways from the Groom Law Group’s legal professionals, which covers:  1) the impact of the establishment of multiple employer plans or pooled employer plans; 2) the offering of in-plan lifetime income options; 3) distributions from plans and individual retirement accounts (IRAs); and 4) other issues related to defined benefit and defined contribution plan recordkeeping and administration.

The website is available here.

Actuarial Standards Board Releases Second Exposure Draft of Proposed Revision for ASOP No. 4

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Actuarial Standards Board Releases Second Exposure Draft of Proposed Revision for ASOP No. 4

In December 2019, the Actuarial Standards Board (ASB) approved the second exposure draft of a proposed revision of Actuarial Standard of Practice (ASOP) No. 4, Measuring Pension Obligations and Determining Pension Plan Costs or Contributions.

According to the ASB, “This actuarial standard of practice [ASOP] provides guidance to actuaries when performing actuarial services with respect to measuring obligations under a defined benefit pension plan and determining periodic costs or actuarially determined contributions for such plans.  Other [ASOPs] address actuarial assumptions and asset valuation methods.  This standard addresses broader measurement issues, including cost allocation procedures and contribution allocation procedures.  This standard provides guidance for coordinating and integrating all of the elements of an actuarial valuation of a pension plan.”

In March 2018, the first exposure draft of ASOP No. 4 was issued, and the ASB received 67 comment letters.  The comment letters received were considered in making the changes included in the second exposure draft.  The comment deadline for the second exposure draft is April 30, 2020. 

The second exposure draft for ASOP No. 4 is available here.

January 2020

IN THIS ISSUE

• Pension Plans Legislative Update
• What’s New With Required Minimum Distributions?
• Frequently Asked Questions (FAQs) About Required Minimum Distributions
• IRS Provides for Expanded 403(b) Plan Remedial Amendment Period
• “Bona Fide” Terminations
• Health Legislation Update
• Tri-Agency Publishes Proposed Rule on Disclosure of Cost-Sharing Information

 

Article by Pete Strong Published in FPPTA Voice Magazine

Events​

January 9, 2020

Article by Pete Strong Published in FPPTA Voice Magazine

The Fall 2019 issue of Voice Magazine, a Florida Public Pension Trustees Association (FPPTA) publication, includes an article written by Pete Strong.  The article, titled Making Every Dollar Count: Optimizing Pension Plan Funding, offers methods that Boards can use to develop an optimal funding arrangement, which is defined as “one that minimizes total contributions over the lifetime of the pension plan, while at the same time balances the competing objectives of benefit security, intergenerational equity, and contribution stability.”

The article which can be found here begins on page 42.  To learn more about pension plan funding optimization, please contact Pete at pete.strong@grsconsulting.com or your GRS consultant.