NASRA Updates Brief on Public Pension Plan Investment Return

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NASRA Updates Brief on Public Pension Plan Investment Return

On March 29, 2022, the National Association of State Retirement Administrators (NASRA) updated its standing issue brief, Public Pension Plan Investment Return Assumptions. NASRA examined public pension investment return data and found that, on average over the past 25 years, public pension funds have exceeded their assumed rates of investment return. The brief finds that for the 20-year period ending December 31, 2021, the median actual annual public pension fund investment return was 7.5% and for the 30-year period was 8.5%.

In addition, it finds that recent changes in economic and financial conditions have caused many public plans to reexamine their investment return assumptions. Since fiscal year (FY) 2010, more than 98% of the 131 plans included in the Public Fund Survey have lowered their return assumptions. For the 131 plans, the average return assumption is 7.0% in FY 2022. The brief also provides a table showing the investment return assumptions that are in use, or announced for use, by the 131 plans included in the Public Fund Survey as of March 2022.  

It also discusses how the investment return assumption is established and evaluated. Then, it compares these assumptions with public funds’ actual investment experience and the challenging investment environment for public retirement systems. 

The brief emphasizes that a governmental plan’s investment return assumption is focused on the long-term, typically an investment horizon of 30 to 50 years. Investment returns are important because investment earnings account for a majority of the revenues received by most public pension plans. According to the brief, since 1990, public pension funds have accrued an estimated $8.5 trillion in revenue. Of that amount, investment earnings account for $5.1 trillion (60%), employer contributions account for $2.4 trillion (28%), and employee contributions account for $1.0 trillion (12%).  

Typically, a 25-basis point reduction in the investment return assumption will increase the cost of a plan that has a cost-of-living adjustment (COLA) by 3% of pay (i.e., a reduction from 7.5% to 7.25% will increase the cost from 10% to 13% of pay). For a plan without a COLA, the return assumption will increase the cost by 2% of pay.

The brief concludes, “The investment return assumption is the single most consequential of all actuarial assumptions in terms of its effect on a pension plan’s finances. The sustained period of low interest rates since 2009, combined with lower projected returns for most asset classes, has caused many public pension plans to reduce their long-term expected investment returns.” 

The brief is available here.

HHS Publishes Briefing Book on the Affordable Care Act and Its Accomplishments

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HHS Publishes Briefing Book on the Affordable Care Act and Its Accomplishments

On March 18, 2022, the Office of the Assistant Secretary for Planning and Evaluation (ASPE) of the U.S. Department of Health and Human Services (HHS) published its Briefing Book, The Affordable Care Act and Its Accomplishments. The Affordable Care Act (ACA) was signed into law in 2010 and expanded U.S. health insurance coverage among all states and demographic groups.

The Briefing Book summarizes the key findings on the ACA from multiple reports published in 2021-2022 by the ASPE/HHS working in collaboration with the Centers for Medicare and Medicaid Services (CMS). It focuses on significant findings in the following categories: 1) health coverage and uninsured rates; 2) ACA health insurance Marketplace coverage; 3) Medicaid; 4) preventive care; and 5) populations of interest. In addition, it also includes a report by the White House Council of Economic Advisors.

The book is available here.

CRS Publishes Report on Social Security Retirement Benefit Claiming Age

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CRS Publishes Report on Social Security Retirement Benefit Claiming Age

On March 15, 2022, the Congressional Research Service (CRS) released its report, Social Security Retirement Benefit Claiming Age. The report presents the age distribution of Social Security benefit claims for retired workers based on calendar year, birth year and gender. According to the report, in the last two decades, the age distribution of Social Security benefit claims has shifted to later ages. Several factors that have likely contributed to the change include: 1) changes in the full retirement age (FRA); 2) the retirement earnings test (RET); 3) the delayed retirement credit (DRC); 4) the economic environment; and 5) the population age distribution.

The change in the age distribution of Social Security claiming is relatively consistent for male and female workers. However, women were more likely than men to claim benefits at age 62 (the earliest eligibility age (EEA)) and were less likely to claim benefits at the FRA. The FRA is the age when retired workers can first claim full Social Security retired worker benefits, which has changed from age 65 in 1935 to increasing in increments based on birth year to reaching age 67 for workers born in 1960 or later.  

The report is available here.

MissionSquare Reports on the Impact of COVID-19 on the Public Sector Workforce

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MissionSquare Reports on the Impact of COVID-19 on the Public Sector Workforce

On March 10, 2022, the MissionSquare Research Institute (formerly the Center for State and Local Government Excellence at ICMA-RC or SLGE) published its report, Survey Results:  Continued Impact of COVID-19 on Public Sector Employee Job and Financial Outlook, Satisfaction, and Retention. According to the report, COVID-19 and the Great Resignation continue to impact state and local government employees.

Since the beginning of the pandemic, about 52% of public employees reported that due to coworkers leaving their jobs due to changing jobs, retiring, or leaving the workforce entirely has left the remaining workers anxious (39%), fatigued (42%) and stressed (44%). In addition, 23% of public employees reported incurring greater debt due to the pandemic.

Other key findings include:

  • About 76% of respondents reported that COVID-19 has impacted what they do, where they work, and how they perform their work tasks.
  • About 23% indicated it has been difficult to balance the demands of work and home during the past six months of the pandemic.
  • Nearly 46% reported that the pandemic has created tension in how the public interacts with them.
  • To decrease employee stress, 24% recommended that employers provide salary increases and 15% recommended hiring more staff or reducing workloads.
  • Most were most satisfied with job security (64%), leave benefits (60%) and health insurance (59%). However, only 33% were very or extremely satisfied with their salary, nontraditional benefits (like tuition or child care assistance), and potential career advancement.
  • About 63% indicated that their employer policies implemented during the pandemic have been fair to all employees. However, they also reported that the pandemic has created tension in their coworker working relationships (38%) and with their supervisor (24%).
  • About 59% indicated that they value serving their community while working in the public sector during the COVID-19 pandemic.

The results are based on a national survey of 1,100 state and local government employees conducted by Greenwald Research in November and December 2021.

The survey report is available here.

Groom Law Group Summarizes Proposed Regulations on Required Minimum Distributions

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Groom Law Group Summarizes Proposed Regulations on Required Minimum Distributions

On March 1, 2022, the Groom Law Group released its issue brief, IRS Revamps Minimum Required Distribution Rules. The brief summarizes the proposed regulations issued on February 24, 2022, by the Internal Revenue Service (IRS) related to required minimum distributions (RMDs). These regulations would implement the major changes made by the Setting Every Community Up for Retirement Enhancement Act of 2019 (SECURE Act) and other statutory changes since the existing regulations were issued as well as clarify certain issues raised in public comments and private letter ruling requests. The proposed regulations would impact the calculation of RMDs from qualified 401(a) plans, 403(b) tax-deferred annuities (TDAs), governmental 457(b) plans and IRAs. 

Under Internal Revenue Code (IRC) Section 401(a)(9), qualified plans must provide for minimum distributions for participants that have reached the “required beginning date” (i.e., the date that determines when participants must start receiving RMDs). The SECURE Act changed the required beginning date from age 70-1/2 to age 72. This change was applicable to all types of retirement plans and applied to distributions required to be made after December 31, 2019. 

The brief highlights the key changes under the proposed regulations that would affect the following: 1) defined benefit (DB) plans; 2) defined contribution (DC) plans/IRAs; 3) rollovers; and 4) 403(b) and 457(b) plans. The comprehensive proposed regulations revise the current regulations to eliminate the question and answer format. Generally, most of the RMD rules remain unchanged; however, there are several changes and various examples that illustrate the rules. 

Compliance with these rules may present some significant challenges for communications, system redesign and plan documentation. The plan documents, summary plan documents and administrative practices will need to be reviewed and amended to address the changes by December 31, 2022 or December 31, 2024 for governmental plans. For 2021 distributions, plan sponsors must apply the existing regulations, but also consider a reasonable, good faith interpretation of the SECURE Act’s changes.

The proposed regulations are intended to become effective for distributions for calendar years beginning on and after January 1, 2022. Comments on the proposed regulations are due by May 25, 2022 and a public hearing is scheduled for June 15, 2022.

The brief is available here.

CRR Releases Brief on Unretirement Trends and the Labor Shortage

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CRR Releases Brief on Unretirement Trends and the Labor Shortage

On March 1, 2022, the Center for Retirement Research (CRR) at Boston College released its issue brief, Will Unretirement Help Solve the Labor Shortage? CRR examined whether retirees could potentially return to the workforce in an effort to help ease the current labor shortage.

The key findings include:

  • Over the last 40 years, “unretirement” trends indicate that reentry rates are low in any given year, but are rather responsive to tight labor markets.
  • The current rate of job openings may convince some retirees to return to the workforce, but the number may likely be rather small relative to the shortfall.
  • In the current environment, the ability to work remotely may potentially lead to more unretirements than anticipated.

The brief is available here.

NIRS Survey Finds Americans Are Concerned About K-12 Public School Staff Shortages

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NIRS Survey Finds Americans Are Concerned About K-12 Public School Staff Shortages

On February 28, 2022, the National Institute on Retirement Security (NIRS) released its survey report, Americans’ Views of Public School Teachers and Personnel in the Wake of COVID-19. According to the report, 83% of Americans are concerned about the K-12 public school staff shortages and 81% expressed concern about workforce burnout. In addition, 89% indicated that the staff deserves more respect, and workforce shortages could be addressed with better pay (92%), healthcare benefits (89%) and pensions (86%).

The report concludes, “Going forward, it will be critically important for policymakers and the state, local and federal levels to fully understand the issues confronting the K-12 workforce, along with ways to recruit and retain these workers. Armed with this information, government leaders can make informed decisions about ways to address the growing and alarming shortfall of public school teachers and personnel that is impacting virtually every jurisdiction across the nation.”

The report is available here.