Tag: NIRS

ERISA: Reflecting On 50 Years And Looking To The Future

Mary Pat Campbell

Link: https://www.forbes.com/sites/dandoonan/2024/09/02/erisa-reflecting-on-50-years-and-looking-to-the-future/


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This year is a major milestone for the retirement industry as the Employee Retirement Income Security Act of 1974 (ERISA) reaches its 50th anniversary today.

ERISA is the federal law that for the first time set important standards for most voluntarily established retirement and health plans in the private sector to protect individual participants and beneficiaries. Key provisions of ERISA require plans to provide participants with essential plan information; set minimum standards for participation, vesting, benefit accrual, and funding; establish fiduciary responsibilities for those who manage plan assets; and guarantee payment of benefits through the Pension Benefit Guaranty Corporation (PBGC) for terminated defined benefit pension plans.

There are numerous ERISA successes to celebrate, but there also are challenges associated with the law that can be addressed to help create better retirement outcomes in the future.

Major Successes of ERISA

ERISA has helped Americans prioritize saving for retirement through employer plans at a key juncture when people are living longer. When ERISA was enacted, defined benefit pension plans were the primary type of retirement plan offered by private sector employers.

Thanks in part to ERISA, U.S. pension plans have paid out roughly $8.7 trillion dollars to America’s seniors just since 2009. According to the Investment Company Institute, another $12 trillion in assets are held by pension plans that invest and manage these funds for the benefit of 25 million retirees and millions of workers. Pensions continue to do much of the heavy lifting to preserve a reasonable standard of living for retirees by supplementing Social Security benefits.

Another success of ERISA is that it provides a wide range of protections to workers to ensure retirement assets go toward workers’ retirement benefits and employers are adequately funding these plans. ERISA also created a federal insurance program directed by the PBGC that protects retirement benefits, even if a plan closes or a company goes out of business. Importantly, the program is funded by premiums paid by pension funds, not taxpayers. Typically, the PBGC steps in to oversee plan assets and ensure payment of benefits after a firm ceases to exist. This has proven to be an incredibly successful program, protecting millions of retirees and their beneficiaries.




Author(s): Dan Doonan

Dan Doonan is executive director of the National Institute on Retirement Security, a non-partisan, non-profit research think tank located in Washington, D.C. Dan has been a Forbes Contributor since 2021, and he has more than 25 years of experience on retirement issues from a variety of vantage points – an analyst, consultant and plan trustee. His work is driven by the belief that everyone has a shared interest in a strong and resilient retirement infrastructure in the U.S. that provides sufficient retirement income in the most cost-efficient manner possible. Dan holds a B.S. in Mathematics from Elizabethtown College and is a member of the National Academy of Social Insurance.
 


Publication Date: 2 Sept 2024


Publication Site: Forbes

How Pension Plans Evolved Out of the Great Financial Crisis

Mary Pat Campbell

Link: https://www.ai-cio.com/news/how-pension-plans-evolved-out-of-the-great-financial-crisis/

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A recent webinar held by the National Institute on Retirement Security, in conjunction with consulting firm Segal and Lazard Asset Management, reviewed the report “Examining the Experience of Public Pension Plans Since the Great Recession,” which examines how public retirement plans weathered the period’s market and made subsequent changes to public pension funds to ensure their long-term sustainability.

Most plans recovered their losses between 2011 and 2014, three to six years after the market bottom. Despite the recession and subsequent loss of value, plans continued to pay out over a trillion dollars in benefits to subscribers during the period.

Todd Tauzer, vice president at Segal, says that since 2008, the models and risk assessment strategies of public plans have evolved greatly. Tauzer says, “funding status alone does not indicate health of a public pension, after all, one cannot see the underlying assumptions used. A plan’s funding status can be measured in many different ways, and the ways we measure can change over time.”

“Plans today are on a much stronger measurement of liability than they were 15 years ago,” according to Tauzer. Adjustments to the assumption of the models in mortality, the assumed rate of return, general population counts, and the assumed rate of inflation are a few of the assumptions modified which give greater clarity into pension health post-GFC.

Author(s): Dusty Hagedorn

Publication Date: 17 Oct 2022

Publication Site: ai-CIO

Examining the Experiences of Public Pension Plans Since the Great Recession

Mary Pat Campbell

Link: https://www.nirsonline.org/reports/greatrecession/

PDF of report: https://www.nirsonline.org/wp-content/uploads/2022/09/compressedExamining-the-Experiences-of-Public-Pension-Plans-Since-the-Great-Recession-10.13.pdf

Webinar slides: https://www.nirsonline.org/wp-content/uploads/2022/09/FINAL-Great-Recession-Retro-Public-Webinar.pdf

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This report finds that state and local government retirement systems on the whole successfully navigated the 2007 to 2009 Global Financial Crisis. Moreover, public retirement systems across the nation have adapted in the years since the recession by taking actions to ensure continued long-term resiliency.

Examining the Experiences of Public Pension Plans Since the Great Recession is authored by Tyler Bond, NIRS Research Manager, Dan Doonan, NIRS Executive Director, Todd Tauzer, Segal Vice President and Actuary, and Ronald Temple, Lazard Managing Director and Co-Head of Multi-Asset and Head of U.S. Equity.

The report finds:

  • The majority of public pension plans recovered their pre- recession asset levels within six years, while continuing to pay over a trillion dollars in benefits. In recent years, public plans have reported record-high asset levels.
  • Discount rates, or the assumed rate of return on investments, have broadly decreased from eight to seven percent for the median public pension plan, based on actuarial and financial forecasts of future market returns.
  • Generational mortality tables, possible today with more advanced financial modeling software, have been broadly adopted by nearly all large public plans and future longevity improvements are now incorporated into standard financial projections.
  • Many public plans have shortened amortization periods, or the period of time required to pay off an unfunded actuarial accrued liability, to align with evolving actuarial best practices. Tightening amortization periods, akin to paying off a mortgage more quickly, has had the effect of increasing short- term costs. In the long run, plans and stakeholders will benefit.
  • The intense focus on public plan investment programs since the Great Recession misses the more important structural changes that generally have had a larger impact on plan finances and the resources necessary for retirement security.
  • Plans have adjusted strategic asset allocations in response to market conditions. With less exposure to public equities and fixed income, plans increased exposure to real estate, private equity, and hedge funds.
  • Professionally managed public defined benefit plans rebalance investments during volatile times and avoid the behavioral drag observed in retail investment.

Author(s): Dan Doonan, Ron Temple, Todd Tauzer, Tyler Bond

Publication Date: October 2022

Publication Site: NIRS

Fortifying Main Street: The Economic Benefit of Public Pension Dollars in Small Towns and Rural America

Mary Pat Campbell

Link: https://www.nirsonline.org/reports/mainstreet2022/

PDF: https://www.nirsonline.org/wp-content/uploads/2022/07/FINAL-compresses-fortifyingmainstreet2022_small-compressed.pdf

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The report’s key findings are as follows:

  • Public pension benefit dollars represent between one and three percent of GDP on average in the 2,922 counties studied.
  • Rural counties have the highest percentages of their populations receiving public pension benefits.
  • Small town counties experience a greater relative impact in terms of both GDP and total personal income from pension benefit dollars than rural or metropolitan counties.
  • Rural counties see more of an impact in terms of personal income than metropolitan counties, while metropolitan counties and rural counties see an equivalent impact in terms of GDP.
  • Counties that contain state capitals are outliers from other metropolitan counties, likely because there is a greater density of public employees in these counties, most of whom remain in these counties in retirement.
  • On average, rural counties have lost population while small town counties and metropolitan counties have gained population in the period between 2000 and 2018, but the connection between population change and the relative impact of public pension benefit dollars is weak.

Author(s): Dan Doonan and Tyler Bond from NIRS, Nathan Chobo from Linea Solutions Inc.

Publication Date: July 2022

Publication Site: National Institute on Retirement Security

New Research Offers Comprehensive Guide on Public Sector Hybrid Retirement Plans

Mary Pat Campbell
New Research Offers Comprehensive Guide on Public Sector Hybrid Retirement Plans

Full report link: https://www.nirsonline.org/wp-content/uploads/2021/05/Hybrid-Handbook-F8.pdf

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A new report provides a comprehensive  overview of the many aspects of public sector hybrid retirement plan designs. The report finds that some shifts to hybrid designs were made without a proper evaluation of the long-term implications of the plan changes. In contrast, other hybrids are well-thought-out and more likely to provide retirement security to employees, enabling public employers to recruit and retain a qualified workforce.

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A hybrid is not one particular plan design, but instead is an umbrella term capturing a wide range of different plan designs. Some hybrids are defined benefit (DB) pensions with risk-sharing provisions, while others blend attributes of DB and defined contribution (DC) plans. Each of these plan designs offers tradeoffs in terms of retirement benefits, risks, and costs.

Author(s): Dan Doonan, Elizabeth Wiley

Publication Date: 10 May 2021

Publication Site: National Institute on Retirement Security