NCPERS Releases Report on New Metrics and Approaches for Measuring Public Pension Health

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NCPERS Releases Report on New Metrics and Approaches for Measuring Public Pension Health

On July 26, 2022, the National Conference on Public Employee Retirement Systems (NCPERS) released its report, Measuring Public Pension Health: New Metrics and New Approaches. NCPERS helped to organize the Pension Accounting Working Group, which was comprised of U.S. public pension experts. The group discussed the existing accounting rules, and worked to develop proposed new metrics to generate insights by adding context, such as: comparing a liability to a state’s ability to levy taxes; assessing the context of contributions by their effect on the balance sheet; or considering risk when assessing the value of investment assets.

This report describes a “scorecard” as a standardized summary of pension valuation results. The three new proposed metrics intended to be incorporated in the scorecard include:

  • Scaled Liability to standardize the measure of pension liability against the size of the economy that supports it;
  • UAL Stabilization Payment (USP) to build on a widely used balance sheet metric to create an objective measurement of cash flow for a plan; and
  • Risk-Weighted Asset Value to measure asset value against a plan’s capacity to withstand a bear market, based on its current cash flow and asset allocation.

In addition, the report discussed the use of computer simulation methods to help analyze the health of pension plans, such as stress testing and sensitivity testing and projections.

The report is available here.

NASRA Updates Issue Brief on State Hybrid Retirement Plans

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NASRA Updates Issue Brief on State Hybrid Retirement Plans

On July 20, 2022, the National Association of State Retirement Administrators (NASRA) released its issue brief, State Hybrid Retirement Plans, which updates an earlier version published in June 2021. The brief provides new information on statewide cash balance and combination hybrid plans as well as a map that illustrates the percentage of public employees who participate in mandatory or optional hybrid plans in states that administer such plans for groups of general, public safety or K-12 educational employees.   

While the majority of public employee retirement systems are traditional defined benefit plans, some public-sector plans are considering hybrid plans that contain elements of both defined benefit (DB) and defined contribution (DC) plans. The brief examines two types of hybrid plans: 1) cash balance plans that combine elements of a traditional DB plan and individual accounts into a single plan; and 2) “DB+DC” plans that combine a smaller traditional DB pension plan with separate individual DC retirement savings accounts.    

The brief also provides overviews of cash balance and DB+DC plans that have been established in various states, with some dating back several decades. According to the brief, public-sector hybrid plans have diverse combinations of retirement plan designs to address the cost and risk factors of various state or local governments. However, most continue to include features that meet fundamental retirement plan objectives including: mandatory participation, shared financing, professionally managed pooled investments, benefit adequacy and lifetime benefit payouts. Typically, traditional public-sector DB plans that contain hybrid plan elements include benefits or employee contributions that are linked to the plan’s investment performance or actuarial condition.  ​

The brief is available here.

CRR Publishes Brief on Trends in Average Retirement Age

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CRR Publishes Brief on Trends in Average Retirement Age

On July 19, 2022, the Center for Retirement Research (CRR) at Boston College published its issue brief, How to Think About Recent Trends in the Average Retirement Age? According to the issue brief, after a century of declining work activity among older men, the rate of labor force activity stabilized in the 1980s and increased in the 1990s. This shift was due to changes in retirement plans, nature of work, improvements in education levels, Social Security and health coverage, among other factors. The brief also examines the labor force activity among both older men and older women and builds a measure of the average retirement age. Over time, the average retirement age has increased by about three years.

The brief concludes, “while the labor force activity of older individuals has increased significantly in recent decades, partici­pation is still below where it was when Medicare was enacted in 1965 and further increases in the average retirement age seem relatively unlikely. In short, the recent turnaround provides little basis for changing the parameters of Social Security or Medicare.”

The brief is available here.

NIRS Examines the Economic Benefit of Public Pension Dollars in Small Towns and Rural Counties

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NIRS Examines the Economic Benefit of Public Pension Dollars in Small Towns and Rural Counties

On July 12, 2022, the National Institute on Retirement Security (NIRS) released its report, Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America. The NIRS research provides an assessment of the economic impact of public pension benefit dollars in 2,922 counties in 43 states.

The report indicates that, among the counties included in the study, pension benefit dollars represent an average of between 1% and 3% of gross domestic product (GDP). Of these counties, pension benefit dollars average 1.25% of total personal income, while some counties experience more than 6% of total personal income derived from pension dollars.

Other key findings include:

  • Rural counties have the highest percentages of their populations receiving public pension benefits;
  • Small town counties have a larger relative impact for both GDP and total personal income from pension benefit dollars than rural or metropolitan counties;
  • Rural counties experience a greater impact on personal income than metropolitan counties, while metropolitan counties and rural counties have an equivalent impact on GDP;
  • Counties with state capitals differ from other metropolitan counties, since there is a greater density of public employees that frequently remain in these counties in retirement; and
  • From 2000 to 2018, on average, rural counties have lost population while small town counties and metropolitan counties have gained population; however, the connection is weak between population change and the relative impact of public pension benefit dollars.

The report is available here.

CRS Updates Social Security Primer

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CRS Updates Social Security Primer

On July 6, 2022, the Congressional Research Service (CRS) published its updated report, Social Security Primer. The CRS report provides an overview of Social Security financing and benefits under current law. The report also includes information regarding: 1) the origins and a brief history of the program; 2) Social Security financing and the taxation of benefits; 3) status of the trust funds; 4) Social Security reform debate; 5) Social Security benefit rules and how benefits are computed; and 6) information about Social Security beneficiaries.

According to CRS, there were about 65.5 million Social Security beneficiaries as of April 2022.  Of those, 50.5 million (77%) were retired workers and family members, 9.2 million (14%) were disabled workers and family members, and 5.9 million (9%) were survivors of deceased workers. 

The report is available here.

CRR Releases Brief on Retiree Risk Assessment

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CRR Releases Brief on Retiree Risk Assessment

On July 5, 2022, the Center for Retirement Research (CRR) at Boston College released its issue brief, How Well Do Retirees Assess the Risks They Face in Retirement? The brief examines the numerous financial risks that retirees face during retirement including: outliving their money (longevity risk), experiencing investment losses (market risk), unexpected health expenses (health risk), the unforeseen needs of family members (family risk) as well as retirement benefit reductions (policy risk).

CRR discussed the importance of these risks and how retirees perceive them when making their consumption and investment decisions. The analysis found significant ranking variances between actual and perceived risks among retirees. For actual or objective ranking, retirees rate risk in the following order: 1) longevity; 2) health; and 3) market. By comparison, for perceived or subjective ranking, retirees rate risk in the following order: 1) market; 2) longevity; and 3) health. Based on these findings, retirees overestimate market volatility and underestimate how long they will live and their health costs.

According to CRR, “First, retirees do not have an accurate understanding of their true retirement risks. This finding highlights the importance of educating the public on the most significant sources of risk. Second, this analysis confirms the importance of longevity and market risk, underscoring the need for lifetime income either through Social Security or private sector annuities. Finally, long-term care is also a significant risk faced by retirees, but one they often underestimate.”

The analysis uses data from the Health and Retirement Study and involves constructing a lifecycle optimization model to quantify each risk by estimat­ing how much wealth retirees are willing to relinquish to insure against it.

The brief is available here.

GRS Consultants Present at 2022 Missouri APERS

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July 13, 2022

GRS Consultants Present at 2022 Missouri APERS

Heidi Barry and Jamal Adora presented the session Actuary Hot Topics at the 2022 Missouri Association of Public Employee Retirement Systems (MAPERS) annual conference. The session covered topics impacting long and short-term plan design, retirement patterns, and pension risk.

The presentation covered: 1) Inflation: Impact of inflation on benefits and assumptions; 2) Mortality Post-Covid: Overview of possible future mortality scenarios; 3) Retirement and Retention: Retirement patterns, pandemic’s impact on retirement, plan designs to retain employees, and impact on liabilities and contributions; and 4) ASOP 4: What is ASOP 4 and what does it change?

Piotr Krekora Serves on Speaker Panel at NCPERS Chief Officers Summit

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June 28, 2022

Piotr Krekora Participates on Speaker Panel at the NCPERS Chief Officers Summit

Piotr Krekora participated in a panel discussion during the NCPERS Chief Officers Summit for the session “Improving the Benefits of Retirees without Damaging the Plan’s Long-Term Viability.” Session summary: The panel discussion covered approaches to protect purchasing power, such as variable cost of living increases and variable benefit designs, and avoid negative impacts on long-term funding status.  The importance of adopting a sound funding policy and conducting projection-based assessments when contemplating plan design changes was also discussed.