Joe Newton to Speak at the NCPERS Virtual Conference

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February 2, 2021

Joe Newton to Speak at the NCPERS Virtual Conference

Joe Newton will present the topic “Ensuring Sustainable Public Pension Plans – A Qualitative Approach” at the 2021 NCPERS virtual conference. The session is based on a unique checklist of qualitative factors and a star-rating method developed under Joe’s leadership. The process is designed to help retirement systems evaluate plan health more comprehensively by assessing factors such as policies, risks, and contribution history, versus merely relying on single metrics such as the funded ratio.

The NCPERS virtual conference is being held from February 2-3, 2021.   Learn more:  https://www.ncpers.org/

S&P Global Ratings Reports on Potential Trends for State and Local Government Pension and OPEB Plans

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S&P Global Ratings Reports on Potential Trends for State and Local Government Pension and OPEB Plans

On January 25, 2021, S&P Global Ratings released its report, Five U.S. State and Local Government Pension and OPEB Trends to Watch for in 2021 and Beyond. According to the report, U.S. public pension and other postemployment benefit (OPEB) plans face various challenges to help recover from the sudden-stop recession and to mitigate health and safety risks due to the pandemic. Some of the challenges facing these plans may be similar to those that occurred after the Great Recession. It is expected to have comparable recessionary policy responses to address these risks and the management of related costs to have near-term credit implications. S&P Global Ratings indicates that even slight changes to pension contributions can have a significant long-term effect on costs and funding levels.

The key findings include:

  • Among some U.S. local governments experiencing severe budgetary stress, pension contribution deferrals are likely to increase;
  • Declining payrolls and early retirements will likely contribute to shortfalls in required plan contributions and demographic changes may increase costs;
  • While interest rates remain low, safer investment options may seem less attractive for pension funds trying to meet targeted investment returns;
  • Governments facing budgetary stress may consider some pension reform initiatives (i.e., pension obligation bonds (POBs)) to be helpful for long-term system health; however, they may not solve near-term credit pressures; and
  • Governments and asset managers are expected to be increasingly guided by environmental, social, and governance (ESG) factors in making investment decisions.

The report is available here.

NASRA Compiles Listing of Rebalancing Policies for Selected Retirement Systems

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NASRA Compiles Listing of Rebalancing Policies for Selected Retirement Systems

Recently, the National Association of State Retirement Administrators (NASRA) released its compiled listing of “Public Retirement System Rebalancing Policies.” The compilation includes selected retirement systems and is based on information published in retirement system investment policy statements.

Typically, the rebalancing process is described in the investment policy statement. According to NASRA, “When investment performance produces changes in asset values that causes them to deviate from specified targets, retirement systems (or their investment management agencies) transfer funds across asset classes to maintain commitment to their target asset allocation.”

For the 47 selected retirement systems, the listing includes the rebalancing policies as well as the asset allocation and target ranges.

The compiled list is available here.

CRR Updates Report on National Retirement Risk Index

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CRR Updates Report on National Retirement Risk Index

On January 19, 2021, the Center for Retirement Research (CRR) at Boston College released its report, The National Retirement Risk Index: An Update from the 2019 SCF. As discussed in this report, the National Retirement Risk Index (NRRI) measures the percent of U.S. working households at risk of being unable to maintain their pre-retirement standard of living throughout retirement. Originally, the NRRI was constructed using the Federal Reserve’s 2004 Survey of Consumer Finances (SCF), which provides information regarding   U.S. households’ assets, liabilities, and demographic characteristics on a triennial basis. 

The NRRI compares the projected household replacement rates (i.e., projected household retirement income as a percentage of projected pre-retirement income) with the target replacement rates needed to maintain their living standard. Households are considered to be “at risk” if their projected replacement rates are below the target rates by more than 10%.

The key findings include:

  • From 2016 to 2019, the NRRI declined slightly from 50% to 49%;
  • The improvement reflected gains in stock and housing prices, which were partially offset by lower interest rates and Social Security replacement rates;
  • In 2020, the economy was impacted by COVID and the subsequent recession;
  • Due to higher unemployment that was slightly offset by the continued growth in stock and house prices, the NRRI increased to 51%; and
  • Generally, 50% of today’s workers remain unprepared for retirement, which indicates the need for universal access to employer-based savings plans.

The report concludes, “This analysis clearly confirms that we need to fix our retirement system so that employer plan coverage is universal. Only with continuous coverage will workers be able to accumulate adequate resources to maintain their standard of living in retirement.”

The issue brief is available here.

NIRS Releases Pensionomics 2021 Report

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NIRS Releases Pensionomics 2021 Report

On January 6, 2021, the National Institute on Retirement Security (NIRS) released its report, Pensionomics 2021: Measuring the Economic Impact of Defined Benefit Pension Expenditures. The biennial study calculates the national economic impacts of U.S pension plans, as well as the impact of state and local plans on a state-by-state basis.

According to the study, each dollar of benefit paid to retirees supported $2.19 of the total U.S. economic output.  In addition, these pension benefits help to support the economy and as well as jobs where retirees reside since those with monthly pension income continue spending on basic needs even during economic downturns. 

During the fiscal year ending in 2018, the study reports: 

  • Public and private pension plans provided about $578.7 billion in benefits to about 23.8 million retirees and beneficiaries. Of this amount, $308.7 billion was paid to 11.0 million state and local government retirees and beneficiaries; $105.9 billion was paid to 2.6 million federal government beneficiaries; $164.1 billion was paid to 10.1 million private sector beneficiaries; $44.2 billion was paid to 3.8 million multiemployer beneficiaries; and $119.9 billion was paid to 6.3 million single-employer beneficiaries.
  • These benefits supported more than $1.3 trillion in the total U.S. economic output and provided an estimated $703.9 billion in value added to the national economy.
  • This, in turn, supported approximately 6.9 million American jobs paying more than $394.2 billion in total compensation, as well as $191.9 billion in annual federal, state, and local tax revenues. The largest employment impacts were in retail trade, health care, real estate, and food service industries.

The study also finds that over the period from 1993 to 2018, government (i.e., taxpayer) contributions to public pension plans averaged 24.86% of the total annual plan receipts, with the remainder coming from investment earnings (64.07%) and employee contributions (11.08%).  As a result, the study estimates that every dollar contributed by taxpayers to public pension funds supports an estimated $6.23 in total economic output.

According to the report, “In supplying a stable source of income to retirees, DB pension plans support the national economy, as well as local economies throughout the country, with jobs, incomes, and tax revenue. Pension benefits play an important role in providing a stable, reliable source of income regardless of economic climate-not just for retired Americans, but also for the local economies in which their retirement checks are spent.”  

The analysis was conducted using data from the U.S. Census Bureau and input-output modeling software (IMPLAN) to assess the economic impact.  In addition to providing national estimates of economic activity, the report also estimates the economic impact of public pensions in all 50 states and provides fact sheets for each state. 

The report is available here.

A map with downloadable fact sheets for each state is available here.

Consolidated Appropriations Act of 2021 Signed into Law

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Consolidated Appropriations Act of 2021 Signed into Law

On December 27, 2020, President Donald Trump signed the Consolidated Appropriations Act of 2021. The massive bill includes the authorization for government funding for the 2021 fiscal year as well as long-awaited relief and economic stimulus legislation related to the ongoing COVID-19 pandemic. Among other provisions, the $2.3 trillion omnibus appropriations and COVID-19 relief package also includes a large surprise medical billing package, a health transparency and patients’ rights package, and additional consumer protections. In addition, the legislation includes tax extenders, disaster tax relief and a few miscellaneous provisions affecting retirement plans.

Further information is available in the January 2021 issue of GRS Insight available here.

NASBO Releases Fall 2020 Fiscal Survey of States

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NASBO Releases Fall 2020 Fiscal Survey of States

On December 23, 2020, the National Association of State Budget Officers (NASBO) released its semi-annual report, Fall 2020 Fiscal Survey of States. The report updates information on the states’ fiscal conditions, including aggregate and individual state data on general fund receipts, expenditures, and balances. The survey was conducted by NASBO and completed by state budget officers in all 50 states over the period from August 2020 through October 2020.

The report highlights states’ enacted budgets for fiscal 2021. The survey shows state general fund spending in fiscal 2021 is projected to decline for the first time since the Great Recession, based on enacted budgets. After nine consecutive years of budget growth, states experienced revenue declines in fiscal 2020, and greater decreases are expected in fiscal 2021. Due to the COVID-19 recession, weakening revenue projections resulted in states reducing general fund spending by 1.1% compared to fiscal 2020. Also, compared to governors’ budgets proposed before the pandemic, states’ enacted budgets indicate a 5.5% reduction in general funding spending totaling $52 billion.

Before the pandemic, rainy day funds and total balances were at record highs. However, these amounts have been declining since states have had to use their reserves to address budget shortfalls. The report also notes that, “The fiscal 2021 data in this report represent a point in time, as spending and revenue projections continue to be moving targets. State-by-state data also reflect differing points in time depending on when a state enacted its budget for fiscal 2021 and how often a state revises its revenue forecast.”

The full report and summary are available here.

January 2021

IN THIS ISSUE

• Legislative Update
• Governmental 457(b) Plan Primer
• IRS Provides Additional Guidance on Terminating 403(b) Plans
• Changes to Default Taxation of Periodic Pension Payments Held Until After 2021
• Tri-Agency Guidance Addresses Coverage of COVID-19 Preventive Services
• Health Plan and Insurer Price Transparency Regulations
• Proposed 2022 Notice of Benefit and Payment Parameters