State and Local Pensions: Separating Myth from Fact

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State and Local Pensions: Separating Myth from Fact. 2008 EARN Conference December 10, 2008 – Las Vegas, NV Beth Almeida Executive Director. Defined Benefit Contributions pooled in a common trust Investments made by professionals/trustees - PowerPoint PPT Presentation

Text of State and Local Pensions: Separating Myth from Fact

  • State and Local Pensions: Separating Myth from Fact2008 EARN ConferenceDecember 10, 2008 Las Vegas, NV

    Beth Almeida Executive Director

  • Defined Benefit Pensions vs.Defined Contribution AccountsDefined BenefitContributions pooled in a common trustInvestments made by professionals/trusteesAt retirement, regular monthly pension payments for lifeDefined ContributionContributions made to an individual accountInvestments are employee-directedAt retirement, account balance is yours annuity options are rare

  • Private Sector DB to DC TransitionDC ParticipationDB Participation

  • Retirement Readiness What Difference Does a Pension Make?DB plans provide

    Secure and adequate retirement income

    Those without pensions are more likely to be at risk in retirement

  • Growing Retirement RisksSource: Munnell, Webb and Golub-Sass. 2007. Is There Really a Retirement Savings Crisis? An NRRI Analysis Issue in Brief, No. 7-11. Center for Retirement Research, Boston College.

  • Growing Retirement RisksSource: Munnell, Webb and Golub-Sass. 2007. Is There Really a Retirement Savings Crisis? An NRRI Analysis Issue in Brief, No. 7-11. Center for Retirement Research, Boston College.

  • Public Employees Far More Likely to Have DB PensionsSource: Munnell and Soto. 2007. State and Local Pensions are Different from Private Plans SLP-1. Center for Retirement Research, Boston College.

  • Proposals Have Emerged in Some States to Dismantle Public Pensions

  • Misperceptions about Public PensionsRelative cost of DB plans vs DC plans

    Consequences of freezing DB plans

    How public pension plans are funded and how they invest

  • DB Plan Can Deliver Same Benefit at About Half the Cost of DC Plan

  • DB Plan Can Do More with Less

  • Look Before You Leap: Unintended Consequences of Pension FreezesBy itself, freezing plan does nothing to close funding shortfall

    Freezing plan undermines the economics of the plan by starving it of new entrants

    Because of accounting regs, plan costs can actually increase

  • Funding of Public PensionsMost state and local governments are on track toward full funding of their pension plans (GAO - Sept 2007)

    The funded status of state and local government pensions overall is reasonably sound (GAO - Jan 2008)

    Still, investment losses will create pressures in coming years .

  • In It for the Long HaulReport ConclusionsPublic plans are prudent investors Rebalance in response to price swingsSystematically follow practices of performance leadersAvoid excessive risk-taking, moral hazard and employer conflicts

    If anything, the last crisis made public pension plans more cautious, not less cautious

  • Separating out Myth from FactPublic pension plans meet twin goals of

    Retirement security for employees/retireesFiscal responsibility for taxpayers

    Restoring retirement security will require raising the bottom, not racing to the bottom

  • www.nirsonline.org

  • Questions?

  • State and Local Pensions: Separating Myths from Fact2008 EARN ConferenceDecember 10, 2008 Las Vegas, NV

    Beth Almeida Executive Director

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