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<< Older News  |  January 24, 2021

News

All News > State and Local Government Plans

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Public Pensions' Funded Ratio Soars in Q4 2020
Milliman Retirement Town Hall Link to more items from this source
Jan. 22, 2021

"Public pensions had a stellar final quarter of 2020, with the funded status of the Milliman 100 plans increasing from 72.6% at the end of September to 78.6% as of December 31. This funded ratio is the highest recorded in the history of Milliman's Public Pension Funding Study and marks quite a swing from Q1 2020, at the onset of the COVID-19 pandemic, when the funded ratio hit a low of 66.0%."

Tags: Funding of DB Plans  •  State and Local Government Plans

Upcoming Deadline for Michigan Public Schools to Participate in Proposed IRS Closing Agreement on 3% Retiree Healthcare Contributions
Miller Johnson Link to more items from this source
[Guidance Overview]
Jan. 21, 2021

"February 5, 2021 is the deadline for Michigan public school districts to submit a Form 2848 to the State of Michigan Office of Retirement Services to participate in and be covered by the proposed IRS closing agreement related to 3% retiree healthcare contributions. Michigan public school employees who did not opt out of retiree health coverage under the Michigan Public School Employees Retirement System Act are required to make 3% contributions to ORS for retiree health coverage.... For a limited time, the IRS is allowing Michigan public school districts to participate in a closing agreement that favorably resolves the tax treatment of these contributions. The IRS indicated that the closing agreement will provide that the retiree healthcare contributions are exempt from federal income and FICA taxes."

Tags: Local Regulation  •  Retiree Health Plans  •  State and Local Government Plans

Editor's Pick Working Paper on State and Local Pensions:The Case for Fundamental Reforms (PDF)
Office of the Assistant Secretary for Policy, U.S. Department of Labor [DOL] Link to more items from this source
Jan. 19, 2021

99 pages; Jan. 15, 2021."This Report has several goals. It summarizes the finances and operations of the nation's state and local pension plans today and the challenges they face. It describes the pressures, the regulatory frameworks, and the choices which have produced these current burdens and challenges. It draws some lessons from the varied institutional structures and economic outcomes of public-sector pensions and private-sector retirement programs. Finally, it suggests some routes to reform in order to promote sound pension administration and enhanced retirement security. This Report's central aim is to illuminate the pension problems faced by state and local governments, policymakers, and taxpayers -- and to encourage states and localities to address these problems."

Tags: Funding of DB Plans  •  State and Local Government Plans

Plan Administrators, Plan Committees, and Public Agency 457(b) Plans
Best Best & Krieger LLP Link to more items from this source
Jan. 7, 2021

"Many investment advisors for public agency 457(b) plans believe that their public agency clients must have a retirement plan committee in order for the plan to have a proper plan administrator or fiduciary structure.... [T]here are a lot of good reasons: [1] not to establish a formal committee as the plan administrator; or [2] to limit the scope of a committee's responsibilities."

Tags: 457 Plans  •  Retirement Plan Administration  •  State and Local Government Plans

Public Pension Plans Must Adopt Rules for Long-Term Sustainability
Marin Independent Journal Link to more items from this source
[Opinion]
Jan. 4, 2021

"There are two things that must happen before we have a sustainable, fiscally responsible public pension system: [1] Provide for some pension benefit flexibility by allowing, at a minimum, that prospective pension benefit accruals for all participants can be reduced if funded status falls below a statutorily defined level. [2] Establish rules that force plans to make changes that keep or attain that defined funding level."

Tags: Funding of DB Plans  •  State and Local Government Plans

Editor's Pick Innovative Funding Strategies from the Public Sector (PDF)
National Institute on Retirement Security [NIRS] Link to more items from this source
Dec. 29, 2020

20 pages. "[T]his report examines several innovative and often lesser-known pension funding strategies that have been utilized in the public sector to address legacy pension costs and to create more stable costs over time.... Each of these efforts changes the nature of plan funding in different ways, and these case studies can be a useful reference guide for those who are concerned about a well-functioning public finance system and honoring benefits earned by state and local government employees."

Tags: Funding of DB Plans  •  State and Local Government Plans

On the Bailouts That Didn't Happen, Part 2: State and Local Governments
STUMP Link to more items from this source
[Opinion]
Dec. 28, 2020

"[T]he deep, structural fiscal problems of some states can't be fixed by the federal government. It has to be done within the states themselves. If the Republicans hold onto their sliver of a majority in the Senate, nothing is going to happen re: state/local bailouts."

Tags: Funding of DB Plans  •  Retirement Plan Policy  •  State and Local Government Plans

Evaluating Pension Investment Strategies: A Comparison of Top- and Bottom-Performing State Public Pension Funds to a Passive Index Portfolio (PDF)
Institute for Pension Fund Integrity [IPFI] Link to more items from this source
Dec. 22, 2020

"Overall, asset allocation did not drastically vary among the top- and bottom-performing funds.... South Dakota consistently outperformed other states' pensions, in both its ranking against the 60/40 strategy and its funding ratio.... ESG investment can be an important tool for diversifying portfolios and impacting corporate governance, but ultimately has not been shown to garner the same return on investment as passive investment strategies.... Public pension fiduciaries need to focus solely on the financial returns of their investments."

Tags: Fiduciary Duties  •  Funding of DB Plans  •  Retirement Plan Investments  •  State and Local Government Plans

Public Pension Funding Index, 3rd Quarter 2020
Milliman Link to more items from this source
Dec. 18, 2020

"The third quarter (Q3) of 2020 continued the upward trend in asset returns for public pensions, reflecting continued strong growth in markets following the initial COVID-19-induced economic impact in Q1. Q3 investment gains propelled the estimated funded status of the 100 largest U.S. public pension plans from 70.7% at the end of June 2020 to 72.6% at the end of September 2020[.]"

Tags: Funding of DB Plans  •  State and Local Government Plans

The Impact of the COVID-19 Pandemic on Public Pension Plans (PDF)
American Academy of Actuaries Link to more items from this source
Dec. 15, 2020

"The pandemic has the potential to affect plan contributions, investment returns, and demographic experience. The severity of the impact ... is likely to vary significantly from plan to plan depending on the economic disruption in the plan's geographic region and the exposure of the plan's members to COVID-19.... [C]ontinued budgetary pressures -- combined with persistent low interest rates that may force plans to reduce expected investment returns -- could make it even more difficult for plan sponsors to make the needed level of contributions."

Tags: Funding of DB Plans  •  State and Local Government Plans

Some Governmental Plans Have Special Compensation Limit
PLANSPONSOR; free registration may be required Link to more items from this source
Dec. 8, 2020

"If permitted in the plan document, a governmental plan can apply an older, higher indexed 401(a)(17) limit that was in place back on July 1, 1993, but ONLY for any individuals who first became a participant in the plan prior to the first day of the first plan year beginning after the earlier of: [1] the last day of the plan year by which a plan amendment to reflect the 401(a)(17) limit reduction made by section 13212 of OBRA '93 was both adopted and effective; or [2] December 31, 1995."

Tags: Retirement Plan Design  •  State and Local Government Plans

Illinois Pension Funding Crisis Looming, Tax Measure Failure Hurts Prospects
Institute for Pension Fund Integrity [IPFI] Link to more items from this source
[Opinion]
Dec. 8, 2020

"Rather than raising taxes on the wealthiest to cover the pension deficit, the state will now have to look toward alternative measures, including broader tax increases across the board as well as cutting future pension earnings for new workers. One of the paths to reform would be a complete overhaul: a constitutional amendment to cut already-promised benefits. The state should also consider taking smaller measures, including considering more stable investments and using more realistic investment predictions."

Tags: Funding of DB Plans  •  Local Regulation  •  Retirement Plan Policy  •  State and Local Government Plans

2020 Public Pension Funding Study
Milliman Link to more items from this source
Dec. 4, 2020

"June 30, 2019, is the measurement date for three-quarters of the plans in the 2020 study. The 12 months since that date were marked by extreme market volatility amid the onset of the COVID-19 pandemic.... [The authors] estimate that aggregate plan assets rose just slightly from $3.82 trillion as of the most recent fiscal year-ends to $3.84 trillion as of June 30, 2020."

Tags: Funding of DB Plans  •  State and Local Government Plans

Corporate Pension Plans Funded Status, November 2020 (PDF)
NEPC Link to more items from this source
Dec. 4, 2020

"Based on NEPC's hypothetical open- and frozen-pension plans, the funded status of the total-return plan went up by 2.6%, while the LDI-focused plan saw an increase of 3.8% as long-duration fixed income outperformed on the back of falling credit yields."

Tags: Funding of DB Plans  •  State and Local Government Plans

Internal vs. External Management for State and Local Pension Plans
Center for Retirement Research at Boston College Link to more items from this source
Nov. 24, 2020

"This study explores how the number of managers affects fees and after-fee returns, controlling for plan size, asset allocation, and extent of external management. The results suggest that a significant reduction in the number of managers could reduce fees somewhat, but, in terms of after-fee returns, it matters who gets cut."

Tags: Retirement Plan Investments  •  State and Local Government Plans

Why Public Pensions Are Cheaper Than Other Retirement Plans Like 401(k)s
National Public Pension Coalition Link to more items from this source
[Opinion]
Nov. 19, 2020

"[C]losing public pension plans and moving all newly hired public employees into defined-contribution plans like a 401(k) or cash balance hybrid plans ... can increase costs.... [1] Closing a defined-benefit plan can increase unfunded liabilities.... [2] Public pensions are cheaper to administer than defined-contribution plans.... [3] Closing a defined-benefit plan can create higher public employee turnover, leading to increased training costs."

Tags: Retirement Plan Design  •  State and Local Government Plans

Do State and Local Government Employees Save Outside of Their Defined Benefit Plans When They Need To?
Center for Retirement Research at Boston College Link to more items from this source
Nov. 13, 2020

"Employees whose pensions provide less income are more likely to participate in a supplemental DC plan, but the effect is small. Members of poorly funded pension plans are not more likely to participate in supplemental plans than members of well-funded plans. Employees without Social Security coverage are not compensating with greater participation in supplemental plans."

Tags: State and Local Government Plans

Tighter Municipal Budgets Shrink Retiree Health Benefits
The Wall Street Journal; subscription may be required Link to more items from this source
Nov. 9, 2020

"For all 50 states combined, revenue declines for 2020 and 2021 could reach 13% cumulatively, according to Moody's Analytics projections, while the average cost of an employer health-care plan for an individual increased 4% in 2020 to $7,470, according to the Kaiser Family Foundation nonprofit."

Tags: Retiree Health Plans  •  State and Local Government Plans

Constitutional Limits on Public Pension Reform: New Directions in Law and Legal Reasoning
T. Leigh Anenson, Linda Barkacs, and Jennifer Gershberg, via SSRN Link to more items from this source
Oct. 30, 2020

"Faced with alarming actuarial deficits, state and local legislatures are enacting comprehensive reforms to avoid insolvency. Government employees, however, are challenging these reforms under the Contract Clause.... [An] overwhelming majority of barriers to pension reform are judge-made, meaning that changing case outcomes would not require a constitutional amendment.... [R]eforms have generally been upheld even in those states in which existing doctrine is more protective of employee pensions. These results have practical implications by suggesting that governments can expand the scope of reforms."

Tags: Retirement Plan Design  •  Retirement Plan Policy  •  State and Local Government Plans

Editor's Pick ESG Investing and Public Pensions: An Update
Center for Retirement Research at Boston College Link to more items from this source
Oct. 27, 2020

"Public pension plans have engaged in social investing since the 1970s in response to state mandates. More recently, the plans themselves have embraced a 'new' form of investing that incorporates environmental, social, and governance (ESG) factors. ESG investing is based on the notion that taking account of non-financial factors will lead to better investment outcomes. Some also believe ESG investing can further socially beneficial practices. The evidence suggests, however, that social investing: [1] yields lower returns; and [2] is not effective at achieving social goals. Hence, any form of social investing is not appropriate for public pension funds."

Tags: Retirement Plan Investments - ESG  •  State and Local Government Plans

Public Pensions and COVID-19: Confronting a Crisis, and Opportunities for Reform (PDF)
Institute for Pension Fund Integrity [IPFI] Link to more items from this source
[Opinion]
Oct. 27, 2020

15 pages. "The market downturn of the last several months has exacerbated the funding shortfalls facing many public pensions funds across the country ... In the short- and medium-term, pension funds will have increased difficulties meeting their required contributions and other financial obligations, and many may also face a liquidity crisis.... [P]ublic pension fund managers are now in a position to implement long-needed reforms to their investment, management, and public policy strategies."

Tags: Funding of DB Plans  •  State and Local Government Plans

Our Public Pensions in Crisis
Carrie McCabe, in Forbes Link to more items from this source
Oct. 19, 2020

"At $1.24 trillion, the fifty-state pension funding gap -- the difference between a state retirement system's assets and its liabilities -- improved slightly in 2018 with strong investment performance. However, the Pew report estimates that the aggregate pension funding gap has since increased by an additional $500 billion through March 2020 based on market pandemic losses."

Tags: Funding of DB Plans  •  State and Local Government Plans

Pensions for State and Local Government Workers Not Covered by Social Security: Do Benefits Meet Federal Standards?
Laura Quinby, Jean-Pierre Aubry and Alicia H. Munnell, via SSRN Link to more items from this source
Oct. 8, 2020

"This article examines data from a variety of sources to assess whether state and local governments currently satisfy the federal standards for retirement plan sufficiency and whether the standards ensure benefits equivalent to those from Social Security."

Tags: Retirement Plan Design  •  State and Local Government Plans

Summary of the Quarterly Survey of Public Pensions for 2020: Q2
U.S. Census Bureau Link to more items from this source
Oct. 7, 2020

"For the 100 largest public-employee pension systems in the country, assets (cash and investments) totaled $4,094.2 billion in the second quarter of 2020, increasing by 7.6 percent from the first quarter of the 2020 level of $3,803.6 billion. Compared to the same quarter in 2019, assets for these major public-pension systems increased 3.7 percent from $3,946.9 billion."

Tags: Funding of DB Plans  •  State and Local Government Plans

GASB Aims to Mitigate Costs of Fiduciary Activities Standard
Moss Adams LLP Link to more items from this source
[Guidance Overview]
Oct. 6, 2020

"The new standard intends to reduce the financial-reporting complexities and ease the overall implementation costs of GASB 84, Fiduciary Activities -- specifically when evaluating defined contribution pension and defined contribution post-employment benefit plans ... Implementation of GASB 97 is expected to minimize the number of DC plans that meet the criteria for reporting as a fiduciary component unit within a sponsoring government's annual financial report."

Tags: Accounting  •  Fiduciary Duties  •  State and Local Government Plans


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