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Pension Reform Handbook: A Starter Guide for Reformers

August 27, 2014 Comments off

Pension Reform Handbook: A Starter Guide for Reformers
Source: Reason Foundation

Depending on what assumptions you use, current state and local government workers will earn between $4 trillion and $8 trillion in retirement benefits by the time they retire. But jurisdictions across the nation—from small special districts to large state governments—face a serious problem: in some cases, pension systems have only a fraction of the assets they need to meet their obligations. The existence of massive unfunded liabilities undermines the soundness of pension plans and threatens the fiscal stability of governments.

In almost every case, dealing with these serious problems is guaranteed to be a complex and politically contentious process. But the good news is that a number of jurisdictions have paved the way for substantive reform, and several state and local governments now stand as models from which others can learn.

This handbook aims to capture the experience of policymakers in those jurisdictions and bring together the best practices that have emerged from their reform efforts, as well as the important lessons learned. By presenting these alongside the general principles and approaches that work to reform public policy, this handbook represents a “what you need to know” starter guide for anyone planning to reform their jurisdiction’s pension system.

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2014 Retirement Confidence Survey of the State and Local Government Workforce

August 21, 2014 Comments off

2014 Retirement Confidence Survey of the State and Local Government Workforce
Source: TIAA-CREF

This report analyzes data from a recent survey initiative that examined the employment and retirement planning and saving experiences of state and local government workers, as well as their confidence in their retirement income prospects. One-third of public sector employees have been with their current employer for less than 10 years and one-third for 20 years or longer. When considering the future, two-thirds do not expect to leave their current employer anytime soon. Respondents ranked job security, health insurance, retirement benefits, and salary as the most important job elements they would consider in deciding whether to switch employers. The vast majority of state and local employees are covered by a primary defined benefit pension plan and expect to receive retiree health care benefits; one-quarter of these workers reported changes to these benefits over the past two years and one-quarter expect (more) changes in the next two years.

15th Annual Transamerica Retirement Survey

August 18, 2014 Comments off

15th Annual Transamerica Retirement Survey
Source: Transamerica

Results from the 15th Annual Transamerica Retirement Survey show retirement expectations and readiness across generations. The initial report, “Three Unique Generations with Very Different Retirements Ahead of Them: Baby Boomers, Generation X and Millennials,” offers comparisons among the three generations. The second report, “Millennial Workers: An Emerging Generation of Super Savers,” explores the youngest group of workers and spotlights their strides toward retirement readiness.

Paychecks or Promises? Lessons from the Death Spiral of Detroit

August 12, 2014 Comments off

Paychecks or Promises? Lessons from the Death Spiral of Detroit
Source: Federal Reserve Bank of Minneapolis

Pay-with-promises compensation plans accumulate liability for future employee benefits, such as retiree health insurance. A simple economic model demonstrates that such plans can exacerbate fiscal crises faced by cities that experience external economic shocks, such as the departure of a major employer. City leaders often raise taxes and/or reduce public services to pay off legacy employee debts, and such steps encourage residents to move out, reducing the tax base and raising fiscal stress. Pay-as-you-go compensation plans are more prudent; they settle liabilities to employees paycheck by paycheck.

More Americans May Be Adequately Prepared for Retirement Than Previously Thought

August 12, 2014 Comments off

More Americans May Be Adequately Prepared for Retirement Than Previously Thought
Source: RAND Corporation

While many believe that Americans are in terrible shape when it comes to being financially prepared for their “golden years,” new evidence indicates that the news may not be as dire as previously thought. Moving away from previous studies that focused on income replacement rates, a recent report from the RAND Corporation looks instead at consumption in retirement to gain a better understanding of what is needed for adequate preparation. This focus on consumption reflects the fact that spending during retirement is not flat; instead, it tends to decline with age for the vast majority of people, who spend less money on travel or other leisure activities, as well as less on transportation, clothes, and other regular expenses.

Using a rich data-focused approach, RAND researchers came to the conclusion that, overall, about 71 percent of individuals ages 66–69 are adequately economically prepared to retire, given expected consumption. Other key findings — with consequences for both individuals and policymakers — indicate large disparities across subsets of the population and highlight the significant contribution of Social Security to seniors’ financial preparation for retirement.

Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households

August 8, 2014 Comments off

Federal Reserve Board issues Report on the Economic Well-Being of U.S. Households
Source: Federal Reserve Board

In its new Report on the Economic Well-Being of U.S. Households, the Federal Reserve Board provides a snapshot of the self-perceived financial and economic well-being of U.S. households and the issues they face, based on responses to the Board’s 2013 Survey of Household Economics and Decisionmaking. The report provides insight into numerous topics of current relevance to household finances, including: housing and living arrangements; credit access and behavior; education and student loan debt; savings; retirement; and health expenses.

Overall, the survey found that as of September 2013 many households were faring well, but that sizable fractions of the population were at the same time displaying signs of financial stress. Over 60 percent of respondents reported that their families were either “doing okay” or “living comfortably” financially; although one-fourth said that they were “just getting by” financially and another 13 percent said they were struggling to do so. The effects of the recession also continued to be felt by many households, with 34 percent reporting that they were somewhat worse off or much worse off financially than they had been five years earlier in 2008 and 34 percent reporting that they were about the same.

As of September 2013, education debt of some kind was held by 24 percent of the population, with 16 percent having acquired debt for their own education, 7 percent for their spouse/partner’s education, and 6 percent for their child’s education.

The survey results suggest that many households are not adequately prepared for retirement. Thirty-one percent of non-retired respondents reported having no retirement savings or pension, including 19 percent of those ages 55 to 64.

The Great Recession pushed back the planned date of retirement for two-fifths of those ages 45 and over who had not yet retired, and 15 percent of those who had retired since 2008 reported that they retired earlier than planned due to the recession. Among those ages 55 to 64 who had not yet retired, only 18 percent plan to follow the traditional retirement model of working full time until a set date and then stop working altogether, while 24 percent expected to keep working as long as possible, 18 percent expected to retire and then work a part-time job, and 9 percent expected to retire and then become self-employed.

Understanding Public Pension Debt

August 8, 2014 Comments off

Understanding Public Pension Debt
Source: Competitive Enterprise Institute

State government pension debt burdens labor markets and worsens the business climate. To get a clear picture of the extent of this effect around the nation, this paper amalgamates several estimates of states’ pension debts and ranks them from best to worst.

Today, many states face budget crunches due to massive pension debts that have accumulated over the past two decades, often in the billions of dollars. There are several reasons for this.

One reason is legal. In many states, pension payments have stronger legal protections than other kinds of debt. This has made reform extremely difficult, as government employee unions can sue to block any scaling back of generous pension packages.

Then there is the politics. For years, government employee unions have effectively opposed efforts to control the costs of generous pension benefits. Meanwhile, politicians who rely on government unions for electoral support have been reluctant to pursue reform, as they find it much easier to pass the bill to future generations than to anger their union allies.

Another contributing factor has been math—or rather, bad math.

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