National Associations Working to Delay Implementation of SECURE 2.0 Catch-up Contributions

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National Associations Working to Delay Implementation of SECURE 2.0 Catch-up Contributions

Recently, a coalition of retirement industry associations (including the National Association of State Retirement Administrators (NASRA), National Conference on Public Employee Retirement Systems (NCPERS) and National Council on Teacher Retirement (NCTR) as well as trade associations representing private single and multiemployer plans, record keepers and service providers) has been working collaboratively to delay the effective date of Section 603 of the SECURE 2.0 Act of 2022 (SECURE 2.0).

To further their efforts, an Action Letter to Congress and the U.S. Treasury Department has been created to demonstrate the extent of the organizations needing more time to implement Section 603 regarding catch-up contributions to Section 401(a) qualified plans, Section 403(b) plans, and governmental Section 457(b) plans that must be made on a Roth basis. The letter is requesting a two-year delay in the effective date for the Roth catch-up requirement currently scheduled to take effect on January 1, 2024.

On June 7, 2023, a white paper was also published by the American Benefits Council, A Delayed Effective Date is Needed to Preserve Catch-Up Contributions for Older Workers. The white paper has been distributed to key congressional offices and meetings. It explains the issues various organizations face implementing Section 603 related to catch-up contributions under the SECURE 2.0 Act.

Specifically, beginning on January 1, 2024, all age-based catch-up contributions are to be made as Roth contributions for retirement plan participants that earned more than $145,000 in FICA wages in the prior year from the current employer. Unless transitional relief is granted, many retirement plan participants will lose the ability to make catch-up contributions at the end of this year. As a result, many plans would have to eliminate all catch-up contributions for 2024 since compliance systems must be designed in advance of the effective date.

The white paper also states, “Many governmental retirement plans are governed by state or local statutes, and the Roth catch-up requirement will require an amendment to those statutes. In some cases, it simply would not be possible for these legislative bodies to adopt the necessary amendments before January 1, 2024.”

The Action Letter is available here and the white paper is available here.

NASBO Releases Spring 2023 Fiscal Survey of States

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NASBO Releases Spring 2023 Fiscal Survey of States

On June 22, 2023, the National Association of State Budget Officers (NASBO) released their semi-annual report, The Fiscal Survey of States: Spring 2023. The report updates information on the states’ fiscal conditions and presents aggregate and individual data on the states’ general fund receipts, expenditures and balances. The survey was conducted by NASBO and completed by the governors’ state budget officers in all 50 states.  

The report highlights governors’ budget proposals for fiscal 2024 and provides updated estimates for general fund spending, revenue and balances for fiscal 2023 as well as actual data for fiscal 2022. According to NASBO, in fiscal 2024, state budget growth is expected to slow following two consecutive years of significant increases, partially driven by one-time expenditures using surplus funds.

For fiscal 2024, the recommended budgets are estimated to modestly increase by 2.5% for general fund spending. In fiscal 2023, states estimated total general fund spending of $1.20 trillion was on course for annual growth in the aggregate of 12.6% following a record annual increase of 16.8% in fiscal 2022. Adjusted for inflation, general fund spending increased 8.1% in fiscal 2022 and is estimated to increase 4.4% in fiscal 2023.

Other key findings include:

  • For fiscal 2023 general fund revenue collections, 45 states reported exceeding original budgeted revenue projections; at the time of data collection, current estimates were up by 6.5%.
  • Growth in state tax revenue collections has slowed after two consecutive years of double-digit growth with revenues expected to decline by 0.3% in fiscal 2023 and 0.7% in fiscal 2024; this revenue slowdown reflects the impact of recently enacted or proposed tax cuts, slower economic growth, and weaker stock market performance and capital gains.
  • As a share of general fund spending, the median rainy day fund balance is expected to increase from 11.5% in fiscal 2022 to 12.0% in fiscal 2023 and 13.5% in recommended budgets for fiscal 2024. 
  • Total balances that include rainy day funds and general fund ending balances represented 37.3% as a share of total general fund expenditures at the end of fiscal 2022; as states draw down general fund balances, total balances are projected to be 22.8% of general fund expenditures by the end of 2024.

The full report and summary are available here.

 

NASRA Updates Issue Brief on COLAs

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NASRA Updates Issue Brief on COLAs

In June 2023, the National Association of State Retirement Administrators (NASRA) released its issue brief, Cost-of-Living Adjustments, which updates an earlier version published in June 2022. The brief discusses: 1) the purpose of cost-of-living adjustments (COLAs); 2) types of COLAs; 3) costs of COLAs; and 4) recent state COLA legislative changes.  

According to the brief, most state and local government pension plans provide some form of COLAs to offset or reduce the effects of inflation on retirement income. In addition, COLAs are important for state and local government employees who do not participate in Social Security in order to supplement their income during disability or normal retirement. Typically, governments prefund the cost of a COLA over an employee’s working career.  

In addition, the report provides a summary of COLA provisions by state-level plans, including any recent legislative changes. According to the report, of the 100 selected state-level plans that provide COLAs, 72 plans provide them on an automatic basis and 28 plans provide them on an ad hoc basis. 

Since 2009, 17 states have changed their COLAs for current retirees, eight states have changed COLAs for current employees’ benefits and seven have changed COLAs for future employees only. However, in several states, the legality of these changes has been challenged. In addition, some states are including provisions that would allow COLAs to increase if the plan’s funding status or fiscal conditions improve or if inflation rises. 

The report also includes an appendix with a listing of COLA provisions for many state retirement plans and identifies the applicable changes from 2009-2023. 

The brief is available here. 

NASRA Updates Summary of Approved Changes in State Public Pension Plans

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NASRA Updates Summary of Approved Changes in State Public Pension Plans

In June 2023, the National Association of State Retirement Administrators (NASRA) released its updated summary of significant changes in public pension plans since 2019. The summary, Selected Approved Changes to State Public Pensions, 2019-Present, provides selected approved changes in contributions, benefits and eligibility requirements for state public pension plans.

The summary is available here.

The summary extends the 2018 listing of statewide pension reforms presented in Significant Reforms to State Retirement Systems, which is available here.

Navigating the Actuarial Experience Study

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06/02/2023

Navigating the Actuarial Experience Study

Jamal Adora and Mike Kosciuk served as presenters at the Spring Michigan Association of Public Employee Retirement Systems (MAPERS) conference for the session “Navigating the Actuarial Experience Study.”  The speakers covered the PA 202 requirement for Michigan pension plans to undergo an experience study, the purpose and process of an experience study, how to evaluate the study’s findings, and the actions Boards of Trustees may need to take.  The discussion focused on economic and demographic assumptions and actuarial methods involved in an experience study.