NASRA Updates Issue Brief on Employee Contributions to Public Pension Plans

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NASRA Updates Issue Brief on Employee Contributions to Public Pension Plans

In September 2021, the National Association of State Retirement Administrators (NASRA) updated its issue brief, Employee Contributions to Public Pension Plans. The brief analyzes employee contribution plan designs, policies and recent trends.   

According to the brief, almost all state and local government employees are required to contribute to the cost of their retirement benefits. The report also indicates that 25%-30% of state and local government employees do not participate in Social Security. In many cases, those who do not participate in Social Security have a higher pension benefit and higher required contributions as compared with those who do participate in Social Security. The median contribution rates have increased to 6.25% of pay for employees who participate in Social Security and 9.0% for those employees who do not participate in Social Security. 

As reported in the brief, since 2009, 40 state governments increased their employee contribution rates. The legality of increasing employee contributions varies by state. In some states, courts have ruled that legislative efforts to increase employee contributions are a violation of the state constitution or contractual rights. However, in other states, higher employee contributions have either withstood or have not been subject to legal challenges.

The brief also includes an appendix of employee contribution rates for over 120 public pension plans and identifies whether or not plan members have Social Security coverage.

The issue brief is available here.

SSA Releases 2021 Social Security Fast Facts and Figures

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SSA Releases 2021 Social Security Fast Facts and Figures

In September 2021, the Social Security Administration’s (SSA) Office of Policy released Fast Facts & Figures about Social Security, 2021. The publication answers frequently asked questions (FAQs) about the programs administered by the SSA and focuses on data related to Social Security retirement, survivors, and disability benefits, as well as Supplemental Security Income (SSI). Most of the data are derived from the SSA’s Annual Statistical Supplement to the Social Security Bulletin and the 2021 Social Security Trustees Report.

Some of the report’s highlights include: 

  • Overall, about 69.8 million people received SSA benefits or assistance in 2020, with benefits averaging $1,544 per month for retired workers, $1,277 per month for disabled workers, and $1,455 per month for non-disabled widows and widowers.
  • In 2020, about 5.8 million people were newly awarded Social Security benefits, of which 58% were retired workers, 11% were disabled workers and 31% were survivors and dependents.
  • In 2020, about 55% of the adult SSA beneficiaries were women. 

As reported in the 2021 Trustees Report, the trust fund reserves are estimated to be depleted by 2034. Although payroll taxes and other income will flow into the fund, that would only be sufficient to pay about 78% of program costs. The projected shortfall over the next 75 years is 3.54% of taxable payroll.

The report is available here.

Public Plans Database Finds State and Local Pension Plans’ Average Funded Ratio Remains Steady

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Public Plans Database Finds State and Local Pension Plans’ Average Funded Ratio Remains Steady

On September 23, 2021, the MissionSquare Research Institute (formerly the Center for State and Local Government Excellence at ICMA-RC or SLGE) released its research study, Public Plans Database – Snapshot as of September 2021. The analysis indicates that the average funded ratio among state and local pension plans included in the Public Plans Database (PPD) has remained 72% despite the early economic disruption of the COVID-19 pandemic. In addition, those plans have accumulated total assets in defined benefit (DB) pension plans of $5 trillion and in defined contribution (DC) plans of $531 billion.

Other key findings include:

  • DB pensions are offered to 86% of state and local government employees while DC plans are offered to 37%.
  • In 2020, 83% of public pension plans have been contributing at or near their full actuarially determined employer contribution (ADEC), down from 85% in 2019.
  • Of the 207 plans for which 2020 investment data are available, the average assumed return was 7.1%, which was slightly lower than in 2019, but the average actual returns in 2020 were also lower at 3.6%.
  • In 2001, high ratios of active participants to beneficiaries were common, especially for smaller or medium-sized plans. In 2019, all plans averaged 1 to 1.5 active participants for each beneficiary, which may be due to the aging of the workforce and maturing of newer plans.

The PPD is a comprehensive database of over 200 large state and local DB pension plans developed and maintained through the collaborative efforts of MissionSquare Research Institute, the Center for Retirement Research at Boston College (CRR), the Government Finance Officers Association (GFOA), and the National Association of State Retirement Administrators (NASRA).

The analysis is available here.

American Academy of Actuaries Publishes Issue Brief on the 2021 Social Security Trustees Report

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American Academy of Actuaries Publishes Issue Brief on the 2021 Social Security Trustees Report

On September 21, 2021, the American Academy of Actuaries (AAA) released its issue brief, An Actuarial Perspective on the 2021 Social Security Trustees Report. The brief was developed by the AAA’s Social Security Committee and presents the Committee’s perspective regarding the 2021 Trustees Report, which examines the Social Security program’s long-term solvency issues. 

Importantly, the Trustees Report reflects the recent impact of COVID-19 and the ensuing recession, which lowered the tax income to Social Security and contributed to the combined trust fund reserves being projected to become depleted during 2034, one year earlier than projected last year.    

Key findings include:

  • OASDI finances have been significantly affected by the pandemic and recession of 2020.
  • If changes to the program are not implemented before 2034, only 78% of scheduled benefits would be payable after depletion in 2034, declining to 74% by 2095.
  • The actuarial deficit increased from 3.21% of taxable payroll to 3.54% of taxable payroll.  

Congress is urged to act to ensure the sustainable solvency of the Social Security program. Brian Murphy, Senior Consultant at GRS, serves on the AAA’s Social Security Committee, which authored this issue brief.

The brief is available here.

S&P Global Reports on U.S. States’ Risk Reduction in Managing Pension and OPEB Liabilities

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S&P Global Reports on U.S. States’ Risk Reduction in Managing Pension and OPEB Liabilities

On September 20, 2021, S&P Global Ratings published its report, U.S. States Weigh Risk Reduction in Managing Pension and OPEB Liabilities. According to the report, the average U.S. state-funded ratio decreased for fiscal year 2020 from 70.9% to 68.9% mainly due to market returns during the pandemic-induced recession. However, funded levels are expected to improve for many plans due to the generally strong market returns in fiscal year 2021.

Other key findings include:

  • 14 U.S. states met S&P’s minimum funding progress metric for pensions, which indicates that they made substantial contributions toward full funding.
  • In target portfolios, most states continue to reduce market risk exposure that leads to lower discount rates and higher reported liabilities.
  • During the pandemic, state retirement plans benefited indirectly from historic levels of federal aid, but large unfunded liabilities continue.
  • Since most states direct limited resources to other priorities, retiree health care plans remain significantly underfunded.

The report is available here.

CRR Issues Brief on Social Security’s Financial Outlook in 2021

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CRR Issues Brief on Social Security’s Financial Outlook in 2021

On September 14, 2021, the Center for Retirement Research at Boston College (CRR) released its issue brief, Social Security’s Financial Outlook: The 2021 Update in Perspective. As presented in the issue brief, CRR analyzed the 75-year deficit in Social Security benefits projected in the recently released 2021 Social Security Board of Trustees Report.

The brief’s key findings include:

  • The 2021 Trustees Report anticipates that the short-term effects of COVID will dispel quickly, so the trust fund’s depletion date moved by only one year from 2035 to 2034.
  • Over the long term, the Trustees changed three ultimate assumptions which improved the 75-year outlook: 1) a higher fertility rate; 2) slower mortality gains; and 3) a lower unemployment rate.
  • However, the 75-year deficit increased from 3.21% to 3.54% of taxable payrolls due to various data updates and methodological changes (most importantly, a new methodology for estimating fertility).
  • While the increase in the 75-year deficit is not due to COVID, the pandemic has highlighted the importance of Social Security to provide steady income to beneficiaries and serve as a safety net for older workers.

The brief concludes, “Social Security is facing a long-term financing shortfall that equals 1 percent of GDP. The changes required to fix the system are well within the bounds of fluctuations in spending on other pro­grams in the past. Moreover, action needs to be taken before the trust fund is depleted in 2034 to avoid a precipitous cut in benefits.”

The brief is available here.

Commonwealth Fund Analyzes the Coverage and Cost Effects of Proposed Health Insurance Reforms

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Commonwealth Fund Analyzes the Coverage and Cost Effects of Proposed Health Insurance Reforms

On September 9, 2021, The Commonwealth Fund released its issue brief, The Coverage and Cost Effects of Key Health Insurance Reforms Being Considered by Congress. According to the analysis, the proposed health insurance reforms under consideration by Congress would likely lead to a significant drop in uninsured Americans. 

As part of the budget process for fiscal year 2022, Congress is considering a package of two reforms to the Affordable Care Act (ACA). Under the package, the enhanced premium subsidies included in the American Rescue Plan Act (ARPA) would become permanent. In addition, the Medicaid coverage gap would be filled by extending eligibility for marketplace subsidies to people earning below 100% of the federal poverty level (FPL) in 12 states that have not yet expanded Medicaid.

The two policies combined would: 1) largely expand eligibility for marketplace subsidies; 2) decrease the number of uninsured people, particularly at lower income levels; and 3) reduce household financial burdens for health care.

The brief finds that “Making ARPA premium subsidies permanent and filling the Medicaid coverage gap would reduce the number of people without insurance by nearly one-quarter, or 7.0 million people, in 2022. All states would see a drop in their uninsured population … Enrollment in subsidized marketplace plans would nearly double, while premiums would fall by 18 percent on average. Federal spending would increase by an estimated $442 billion over 10 years[.]”

The study is available here.

Paul Wood to Present at the Fall NCPERS Conference

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September 28, 2021

Paul Wood to Present at the Fall NCPERS Confrence

Paul Wood will serve as a co-presenter at the 2021 Fall NCPERS Conference on the topic Pandemic and Retirement Plans. Paul will discuss the how actuarial mortality experience impacted retirement plans, the effect of unexpected strong investment returns, how to strengthen assumptions and methods, and considerations for ad hoc cost-of-living adjustments.

The Fall NCPERS Conference will be held September 26-28, 2021 in Scottsdale, Arizona.

Understanding Social Security Benefits

The Social Security program is becoming increasingly important. This article includes: 1) background information; 2) retirement benefit calculations; 3) the Windfall Elimination Provision (WEP); 4) early and late retirement benefits; 5) working after retirement; 6) family benefits; 7) the Government Pension Offset (GPO); and 8) cost-of-living increases.

GRS to Present at the MAPERS 2021 Fall Conference

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September 20, 2021

GRS to Present at the MAPERS 2021 Fall Conference

David Kausch and Casey Ahlbrandt-Rains will present the topic “Building Public Pension Plan Strategies in Light of a Lingering Pandemic” at the 2021 Michigan Association of Public Employee Retirement Systems (MAPERS) Fall conference.

Presentation Overview:
After over a year of living with the virus, COVID continues to have a devasting impact on our communities and our economy. Fiduciaries and stakeholders of public employee pension plans must understand and monitor all of the ways the pandemic is impacting the short-term actuarial results and the long-term sustainability of their plans.