NASRA Releases Brief on Public Retirement System Governance Stakeholder Roles

Industry News

Print

NASRA Releases Brief on Public Retirement System Governance Stakeholder Roles

In May 2020, the National Association of State Retirement Administrators (NASRA) released its publication, Public Retirement System Governance Stakeholder Roles. The paper is part of a series on public pension plan governance and discusses the roles that various stakeholders play in public pension plan governance, including: 1) the legislature; 2) the chief executive (i.e., the governor for state retirement systems); 3) retirement system board of trustees; and 4) retirement system staff. 

Key findings include:

  • Generally, public retirement system governance is spread among various stakeholders with each having authority and responsibility over specific functions.
  • Within their unique responsibilities, each stakeholder also has restrictions and limitations on certain activities.
  • Typically, the legislature is responsible for delegating authority for governance functions which have a significant impact on the plan’s funding level and cost.

The brief is available here.

 

American Academy of Actuaries Publishes Brief on the 2020 Social Security Trustees Report

Industry News

Print

American Academy of Actuaries Publishes Brief on the 2020 Social Security Trustees Report

On May 22, 2020, the American Academy of Actuaries (AAA) released its brief, An Actuarial Perspective on the 2020 Social Security Trustees Report.  The brief was developed by the AAA’s Social Security Committee and presents the Committee’s perspective regarding the 2020 Trustees Report, which examines the Social Security program’s long-term solvency issues.  In addition, it recommends that Congress should act to ensure the sustainable solvency of the program.  Importantly, the report does not reflect the recent impact of COVID-19, which is expected to result in lower tax income to Social Security.  

The Trustees Report provides separate solvency measures and tests in the short-range (2020-2029) and long-range (2020-2094) time periods.  According to the report, “The combined Social Security trust fund reserves are projected to become depleted during 2035, the same year as projected in last year’s report.  If changes to the program are not implemented before 2035, only 79 percent of scheduled benefits would be payable in 2035, declining to 73 percent by 2094.  The actuarial deficit increased from 2.78% of taxable payroll to 3.21% of taxable payroll.”

The brief is available here.

IRS Announces 2021 HSA Contribution Limits

Industry News

Print

IRS Announces 2021 HSA Contribution Limits

On May 21, 2020, the Internal Revenue Service (IRS) issued Revenue Procedure 2020-32, which provides the 2021 inflation-adjusted amounts for health savings accounts (HSAs) as determined under Internal Revenue Code (IRC) § 223.  For calendar year 2021, the annual limitation on deductions for an individual with self-only coverage under a high-deductible health plan (HDHP) is $3,600.  For calendar year 2021, the annual limitation on deductions for an individual with family coverage under a HDHP is $7,200.

For calendar year 2021, the IRS defines a HDHP under IRC § 223(c)(2)(A) as a health plan with an annual deductible that is not less than $1,400 for self-only coverage or $2,800 for family coverage, and the annual out-of-pocket expenses (deductibles, co-payments and other amounts, but not premiums) do not exceed $7,000 for self-only coverage or $14,000 for family coverage.

Revenue Procedure 2020-32 is available here.

Ice Miller Clarifies COVID-19 Extensions Are Not Mandatory for Governmental Plans

Industry News

Print

Ice Miller Clarifies COVID-19 Extensions Are Not Mandatory for Governmental Plans

On May 21, 2020, the law firm of Ice Miller released its publication, COVID-19 Extensions Are Not Mandatory for Governmental Plans.  On May 4, 2020, the Internal Revenue Service (IRS) and the Employee Benefits Security Administration (EBSA) in the Department of Labor (DOL) issued new guidance on delays due to COVID-19 affecting health and retirement plans.  The IRS and EBSA published a Joint Notice extending numerous deadlines applicable to retirement and health plans subject to the Employee Retirement Income Security Act (ERISA).  The Joint Notice provides that group health plans and plan participants and beneficiaries have additional time to comply with certain deadlines affecting COBRA continuation coverage, special enrollment periods, claims for benefits, appeals of denied claims, and external review of certain claims.

On May 14, 2020, the Department of Health and Human Services (HHS) released a memorandum clarifying that non-Federal governmental plans (i.e., plans that are sponsored by states, counties, school districts, and municipalities) are not required to adopt the extensions provided in the Joint Notice.  However, HHS suggests that sponsors of those plans should provide relief to participants similar to the relief included in the Joint Notice.  If a plan sponsor adopts one or more of the extended deadlines, they should notify the plan participants of the applicable relief.  By doing so, sponsors of such plans would have the flexibility to provide appropriate relief to plan participants while maintaining sound administrative and fiscal control over their plans.

The brief is available here.

Society of Actuaries Publishes Updated Brief on the Impact of COVID-19

Industry News

Print

Society of Actuaries Publishes Updated Brief on the Impact of COVID-19

On May 15, 2020, the Society of Actuaries (SOA) published its updated research brief, Impact of COVID-19.  The brief is updated regularly and examines the impact of COVID-19 on: 1) the economy and assets; 2) insurance; 3) retirement plans; 4) health care costs and utilization; 5) social insurance; and 6) other topics.

Beginning on page 55, the brief discusses the impact of COVID-19 on public defined benefit retirement plans.  According to the SOA report, “While market downturns clearly result in increased unfunded liabilities, the most pressing concern of public pension plans may be the funding of contributions due in 2020.  Because of the widespread COVID-19-induced downturn in economic activity, states and local governments are generally expecting significantly reduced revenue during 2020.” 

The report also states, “Increased contribution needs resulting from increased unfunded liabilities are less pressing concerns for a couple of reasons: actuarial smoothing techniques and timing lags.  Most public pension plans employ actuarial smoothing techniques when determining contribution needs, including asset smoothing and amortization approaches. Asset smoothing details vary from plan to plan, but the intent is universal: to spread over time the impact of both positive and negative asset volatility. While most plans will likely have asset losses stemming from recent market downturns, they will spread those losses over time. In addition, many plans have not yet fully recognized asset gains of recent years, which will also help cushion the blow to increased contribution needs.”

The brief is available here.

CRR/SLGE Examine Impact of Market Decline on Public Pension Plans

Industry News

Print

CRR/SLGE Examine Impact of Market Decline on Public Pension Plans

On May 12, 2020, the Center for Retirement Research at Boston College (CRR) and the Center for State & Local Government Excellence (SLGE) released a new report, 2020 Update: Market Decline Worsens the Outlook for Public Plans.  According to the report, “If markets remain at their current levels until June, most state and local pension plans will end fiscal year 2020 with negative annual investment returns, reduced asset values, lower funded ratios, and higher actuarial costs.” The research indicates that funded ratios may decline between 7 and 14 percentage points by 2025 and government contribution rates may increase by between 5 and 9 percentage points, depending on the rate of the economic recovery.  

Other key findings include:

  • The ratio of assets to liabilities for public plans declined from 71% in 2019 to 69.5% in 2020. As a result of this decrease in the funded ratio, the average actuarially determined contribution is estimated to increase from 18.8% to 19.7% of payroll.
  • From 2020-2025, the average funded ratio for public plans is projected to steadily decline. If markets do not fully recover until 2025, most pension plans have the assets to weather the current challenges through 2025 and beyond.
  • The lowest funded plans will remain solvent during the next five years, but a few are projected to face an increased risk of exhausting their assets soon after 2025.

The brief is available here.

S&P Reports on Public Pensions After the Sudden-Stop Recession

Industry News

Print

S&P Reports on Public Pensions After the Sudden-Stop Recession

On May 6, 2020, S&P Global Ratings released its report, Pension Brief: The Future of U.S. Public Pensions After the Sudden-Stop Recession.  According to the report, due to the sudden pandemic-induced recession, U.S. public pension plan sponsors and administrators are likely nearing a period of fiscal economic stress and growing pension obligations that may impact state and local governments for several years.  Generally, for public sector plans, market returns are built into the funding model and comprise a significant part of pension plan inflows.  S&P indicated that if market returns remain below previous peaks, the effect of poor returns will result in an increase in employer contributions.  The report examines the recession impact on public pensions during three time periods: 1) immediately (liquidity); 2) over the near-to-mid-term (funded levels); and 3) over the long term (maintaining sustainable funding). 

The key findings include:

  • In aggregate, U.S. public pension funds lost about $850 billion in the first quarter of 2020.
  • In the second quarter of 2020, a return of nearly 30% is needed for government-sponsored pension systems to maintain the 73% average funded ratio from 2019.
  • If experience follows the trends of the Great Recession of 2008, adjustments to reduce plan costs and increase contributions are likely to ease budgetary pressures.

The report concludes, “The current sudden-stop recession will affect many aspects of pension system management, and while deferring costs in the near term may provide budgetary flexibility and be a liquidity management tool, it will increase long-term pension costs.”

The report is available here.

NCPERS Reports on the Positive Impact of Public Pensions on Government Revenues

Industry News

Print

NCPERS Reports on the Positive Impact of Public Pensions on Government Revenues

On May 5, 2020, the National Conference on Public Employee Retirement Systems (NCPERS) released its biennial study report, Unintended Consequences: How Scaling Back Public Pensions Puts Government Revenues at Risk-2020 Update.  The study analyzed how investment and spending related to public pension funds affect state and local economies and revenues.  According to the report, public pension funds had a positive financial impact on the U.S. economy increasing to $179.4 billion in 2018 from $137.3 billion in 2016, up 30.6%. 

Some of the key findings include:

  • In 2018, the investment of public pension fund assets and spending of pension checks by retirees in their local communities contributed $1.7 trillion to the U.S. economy.
  • Economic growth attributable to public pensions generated about $341.4 billion in state and local revenues. After taking taxpayer contributions into account of $162 billion, the net positive revenue impact was $179.4 billion.

The report concludes, “Policy makers must preserve and enhance public pensions, building on this time-honored method of ensuring a dignified retirement for those who have dedicated their lives to public service, including firefighters, police officers, and teachers.”

The analysis was based on historical data from 1977 to 2018 from public sources including the Bureau of Economic Analysis, Bureau of Labor Statistics, and U.S. Census Bureau.

The report is available here. 

IRS Provides Q&As on CARES Act Retirement Plan Provisions

Industry News

Print

IRS Provides Q&As on CARES Act Retirement Plan Provisions

On May 4, 2020, the Internal Revenue Service (IRS) posted Questions and Answers (Q&As) on its website, Coronavirus-Related Relief for Retirement Plans and IRAs Questions and Answers.  The Q&As are related to various retirement plan distribution options and loan provisions for certain qualified participants under the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) enacted on March 27, 2020.  The Q&As indicate that each of the distribution and loan provisions are optional for employers to adopt or not adopt. 

The IRS specified that it intends to issue formal guidance regarding the CARES Act distribution and loan provisions in the near future, and anticipates that the guidance will generally be similar to the provisions of the prior guidance under Notice 2005-92 related to the Katrina Emergency Tax Relief Act of 2005 (“KETRA”), which was issued on November 30, 2005 and applied to victims of Hurricane Katrina.

The Q&As are available here.

SLGE Publishes 2020 State and Local Government Workforce Survey

Industry News

Print

SLGE Publishes 2020 State and Local Government Workforce Survey

On April 30, 2020, the Center for State & Local Government Excellence (SLGE) released its survey report, State and Local Government Workforce: 2020 Survey.  The report includes 2020 data on emerging issues such as flexible work policies, hiring and recruiting challenges, retirement plan or health benefit changes, and separations from service.  

The survey indicates an increase in telework among state and local government employees to 27%, up from 22% in 2016 when the question was first added.  The report cites that the telework trend, among others, may relate to the onset of the COVID-19 pandemic that overlapped with the research and may change significantly due to the ongoing pandemic, and unprecedented pressures on state and local government budgets.

According to SLGE, state and local governments report that they continue to face considerable challenges filling various key positions, such as engineers, information technology employees, police officers and registered nurses.  Over the past year, the survey finds that 77% of public employers have hired employees, 46% have hired contract or temporary employees, and 33% have rehired retired staff members.   

Other key findings include:

  • 85% of respondents consider that their benefits are competitive in the labor market.
  • For current employees, 75% of state and local governments have not made any retirement plan changes in the past year.  For new employees, 69% have made no changes.  Of those that made changes, some of the most common types include: increases in employee contributions (9% among new employees and 8% among current employees); decreases in pension benefits (7% among new employees and 3% among current employees); increases in pension eligibility requirements (3% for new employees and 1% for current employees); and increases in employer contributions (8% for both new and current employees).
  • Only 23% reported that their employees are financially prepared for retirement.

The electronic survey was recently conducted among members of the International Public Management Association for Human Resources (IPMA-HR) and the National Association of State Personnel Executives (NASPE).  Of the 222 respondents who participated in the survey, 77% represented local governments, 17% represented state governments, and 6% represented the federal government or non-governmental sectors. 

The report is available here.