In December 2017, the National Association of State Retirement Administrators (NASRA) released its issue brief State Hybrid Retirement Plans, which updates an earlier version published in November 2016. The brief provides new information on public-sector retirement systems that have established hybrid plans since the previous version was released. 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.
In addition, the updated brief features 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.
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.
As of March 2017, the U.S. Department of Labor’s Bureau of Labor Statistics reported that about 50% of the private-sector workforce participates in employer-sponsored retirement plans. By comparison, nearly all state and local government workers have mandatory retirement plan participation.
The brief is available here.