NASRA Updates Issue Brief on State and Local Government Employer Contribution Efforts
In June 2017, the National Association of State Retirement Administrators (NASRA) updated its issue brief, State and Local Government Contributions to Statewide Pension Plans: FY 15. The brief examines: 1) how contributions are determined; 2) recent public employer contribution experience; and 3) trends in employer contributions over time.
According to NASRA, “The median actuarially determined contribution [ADC] received in FY 15 was 100%, and ranged from 12% to 528%… On a dollar-weighted basis, the average ADC received was 91%, up from 87% in FY 14 and marking the highest aggregate annual contribution effort since FY 02… The aggregate rate of increase in required contributions from FY 14 to FY 15 was 4.5%, which is the lowest rate of increase during the measurement period.”
On average, employer contributions to public pension plans continue to be a small percentage of state and local government spending. In recent years, employer contributions have been growing. Among the statewide pension plans included in the study, the ADCs increased from $27.8 billion in FY 01 to $102.8 billion in FY 15. The actual employer contributions paid rose from $28.1 billion in FY 01 to $93.9 billion in FY 15, up 236%.
Depending on the plan, the growth of required employer contributions is due to one or more factors, including: 1) investment market losses; 2) insufficient contributions; 3) revisions to actuarial methods and assumptions; and 4) demographic and investment experience that differs from assumptions. For FY 15, NASRA’s findings indicate that the overall experience shows an improving effort among state and local government employers to make the full actuarially determined contribution.
The brief is available here.
SLGE Releases 2017 Survey on Workforce Trends in State and Local Government
On June 27, 2017, the Center for State and Local Government Excellence (SLGE) released its survey report, State and Local Government Workforce: 2017 Trends. The electronic survey was recently conducted among members of the International Public Management Association for Human Resources (IPMA-HR) and the National Association of State Personnel Executives (NASPE). Of the 283 respondents who participated in the survey, 81% represented local governments, 15% represented state governments, and 4% represented the federal government or non-governmental sectors.
In 2017, the most significant trends include: 1) state and local governments continue to hire employees for the fourth consecutive year; 2) recruitment and retention continue to be challenges; and 3) pressure on benefits continues.
Key findings include:
- 74% of the respondent governments reported hiring workers in 2016;
- 50% hired more workers than in 2015;
- 47% hired contract or temporary workers;
- 45% had more retirements in 2016 than in 2015;
- 22% of retirement-eligible employees postponed their retirement; and
- 17% reported their employees accelerated their retirement.
According to the survey, every year since 2010, a majority of the respondent governments modified their health care benefits for active and retired employees including:
- 38% shifted more of the health care costs from employers to employees in 2016; and
- 24% established wellness programs.
In recent years, the pace of changes to retirement plans has slowed. Over the past year, 17% of the respondent governments changed their retirement benefits, including:
- For newly hired employees: 11% increased employee contributions to their pension plans; 9% increased pension eligibility requirements; 7% increased employer contributions to pension plans; and 5% decreased pension benefits.
- For current employees: 9% increased current employee contributions to pension plans; 7% increased employer contributions to pension plans; 3% increased pension eligibility requirements; and 2% reduced or eliminated cost-of-living adjustments.
To attract younger generations of employees, the trend for flexible work practices is increasing. Of the respondent governments, 56% offer flexible schedules and 17% offer regular telecommuting for eligible employees.
In the future, the majority of respondents are concerned regarding: 1) recruiting and retaining qualified employees; 2) staff and leadership development; 3) succession planning; 4) retaining staff for core services; 5) employee morale; 6) competitive compensation packages; 7) employee engagement; 8) managing workforce; 9) reducing employee health care costs; and 10) public perception of government workers.
The survey report is available here.
NASRA Releases Overview of State Retirement Benefit Plan Types
In July 2017, the National Association of State Retirement Administrators (NASRA) published its resource document, Overview of Primary Retirement Benefit Plan Type, by State. NASRA compiled the list of the primary retirement plan type provided to the majority of public employee groups in each state covering state employees, public safety personnel, public school teachers, and other state and local government employees.
The listing identifies the primary retirement plan type for each state including defined benefit (DB), defined contribution (DC) or hybrid plans. Among state and local government employees, the vast majority participate in a DB plan. While plan designs may vary, many DB plans may also contain hybrid features.
The list is available here.
CRR Issues Brief on Public Pensions’ Alternative Investments
On July 5, 2017, the Center for Retirement Research (CRR) at Boston College issued its brief, A First Look at Alternative Investments and Public Pensions. The brief examines state and local pension plans that have the largest allocations in alternative investments other than traditional public equities, bonds and cash. It also explores the comprehensive impact of aggregate allocation changes on returns and volatility.
The key findings include:
- Public pension plans have increased their investments in alternative assets (i.e., commodities, hedge funds, private equity and real estate).
- The change likely indicates the exploration of higher returns, a hedge for other investment risks and diversification.
- Regarding returns, a 10% increase in the average allocation to alternatives was associated with a decrease of 30-45 basis points, mainly due to hedge funds.
- Regarding volatility, there was not a statistically significant effect due to alternatives. Hedge funds reduced volatility, but commodities and real estate increased volatility.
CRR reported that it conducted a “preliminary” analysis of alternative investments for aggregate public pension plans rather than individual plan performance over two periods from 2005-2015 and 2010-2015. CRR also stated that it, “cannot determine the extent to which alternatives helped meet a plan’s specific objectives.” CRR’s analysis does not address fees, disclosure or administrative issues and does not evaluate how alternative assets are incorporated in each plan’s overall investment strategy. CRR noted that this is their first research study on alternative investments related to public pensions, but cautions that further research may be necessary.
The report is available here.
International Foundation Survey Finds Majority of Employers Do Not Want ACA Repealed Entirely
On July 12, 2017, the International Foundation of Employee Benefit Plans (IFEBP) surveyed U.S. employers regarding employers’ support and opposition for 25 current and proposed health care provisions. The findings indicate that 71% of employers would prefer that the Affordable Care Act (ACA) not be repealed entirely. According to the survey report, Employer Pulse Check: The Future of ACA, the respondents cited the ACA provisions that they supported, including:
- 79% support the tax-favored status of employer-provided health coverage for employers;
- 76% support the tax-favored status of employer-provided health coverage for workers;
- 74% support the mental health benefit parity (i.e., the same level of benefits as for other medical conditions);
- 69% support expanded use-flexibility for health savings accounts (HSAs);
- 67% support the ban on preexisting condition exclusions; and
- 67% support increased wellness incentives as allowed under ACA.
Some of the ACA provisions employers oppose include:
- 85% oppose the Cadillac tax (excise tax on high-cost plans);
- 65% oppose premiums based on medical experience;
- 52% oppose increased age-based premium differentials; and
- 48% oppose the limit on health flexible spending account (FSA) salary reductions (i.e., $2,600 in 2017).
Survey responses were received from 727 human resources/benefits professionals and trustees from all sectors and representing 20 different industries with a range of fewer than 50 to more than 10,000 workers.
The report is available here.
CRR Reports on Social Security’s Financial Outlook
On July 18, 2017, the Center for Retirement Research at Boston College (CRR) issued its brief, Social Security’s Financial Outlook: The 2017 Update in Perspective. As presented in the issue brief, CRR analyzed two different approaches to solving the 75-year deficit in Social Security benefits projected in the recently released 2017 Social Security Board of Trustees Report. The first approach focused on benefit cuts as proposed by Representative Sam Johnson, Chairman of the House Ways and Means Social Security Subcommittee. The second approach focused on solving the deficit with adding major revenue and minor benefit enhancements as proposed by Representative John Larson, Ranking Member of the House Ways and Means Social Security Subcommittee.
The key findings include:
- Social Security’s 2017 Trustees Report indicates little change with the 75-year deficit increasing slightly from 2.66% of taxable payrolls to 2.83%, or 0.9% of the Gross Domestic Product (GDP);
- The trust fund exhaustion date remains at 2034 when payroll taxes will cover about 77% of promised benefits; and
- Social Security’s financing shortfall is manageable, but needs to be addressed to equitably share the burden among cohorts, help restore confidence in the Social Security program, and allow sufficient time for individuals to adjust to changes.
The brief concludes, “Policymakers need guidance about how Americans want the burden of fixing Social Security allocated between benefit cuts and tax increases… Stabilizing the system’s finances should be a high priority to restore confidence in our ability to manage our fiscal policy and to assure working Americans that they will receive the income they need in retirement.”
The brief is available here.