Alaska Public Pension Coalition

A Perspective of the Evolving Teachers’ Retirement System - How did we arrive at this place?

I recently tried to put down some of my thoughts regarding past events affecting TRS. There is so much info and I know I barely touched the surface. As I wrote I concluded several things - ECR rates in the 80's were higher than they are now, legislation(or whatever) that allowed elected officials to join the systems and legislative aides to be vested with very few days greatly affected the unfunded liability because people with little pension income still receive a huge health care benefit, dishonest actuaries caused great damage, actions by the University and its lobbyists greatly influenced the TRS population and the ECRs and, lastly, the State is shortsighted for not considering the future impact of the current DCR members leaving and taking away state dollars and therefore fewer retirees staying in the state and contributing pension dollars to the local economies. Please offer any suggestions or criticisms. This is after all my opinion and there is a wealth of info still out there to consider.

                                                                                    -- Gayle Harbo

The Teachers’ Retirement System [TRS] was established in March 1945, but did not become a joint contributory system until legislation was passed in 1955. At the time only full years were credited and normal retirement was age 60.

Teachers and TRS employers do not contribute to Social Security. Retirees from TRS are therefore not eligible for Social Security benefits unless they had other employment. Even then the benefits they receive may be reduced. When at age 65 they apply for Medicare Part B, the expense is out-of -pocket. Most PERS employees have employer contributions to both the PERS retirement system and either Social Security or a Supplemental Benefit System , an extra 6+% of pay from both employee and employer for additional income upon retirement.

New Public Sector Employees Overwhelmingly Select Pensions Over Individual Retirement Accounts; Pension Cost Efficiencies Cited as Key Advantage

A new study of the retirement plan choice in the public sector finds that defined benefit (DB) pensions are strongly preferred over 401(k)-type defined contribution (DC) individual accounts. The study analyzes seven state retirement systems that offer a choice between DB and DC plans to find that the DB uptake rate ranges from 98 to 75 percent. The percentage of new employees choosing DC plans ranges from 2 to 25 percent for the plans studied.

In recent years, a few states have offered public employees a choice between primary DB and DC plans. The new study, Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers, analyzes the choices made by employees and finds that:

• When given the choice between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan.
• DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling.  
• DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members' accounts.
• When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs.
• A "hybrid" plan for new employees in Utah provides a unique case study in that it has capped the pension funding risk to the employer and shifted risk to employees.

Source: Excerpted From National Institute on Retirement Security 10/5/2011

Social Security: We’re Number…30!

We’ve long emphasized that Social Security benefits are modest — averaging only about $1,100 a month for retirees, disabled workers, and widows.  And they’re also low in relation to earnings.  According to the Organisation for Economic Cooperation and Development, they replace just 42 percent of a median worker’s earnings.  That puts us in 30th place among the 34 OECD member countries.

The Center for Strategic and International Studies has devised a Global Aging Preparedness (GAP) index to rate various nations’ readiness for future demographic changes. CSIS observes that, thanks to its comparatively high birth rates and openness to immigration, the United States is graying less rapidly than many other nations.  People age 60 or older will make up about a quarter of our population in 2040, a figure that several European countries and Japan have already surpassed.  CSIS assigns a low priority to reducing public-pension (i.e., Social Security) benefits in the United States and other “Anglo” nations.  Its top priority for the United States?  Reining in future health-care cost growth.

[Read the full article from the Center on Budget Policy and Priorities.]

 

A Common-Sense Strategy for Fixing State Pension Problems in Tough Economic Times

Pension costs didn’t cause the current state fiscal crisis. And even eliminating defined-benefit pensions — with all the problems that would entail — wouldn’t have much impact on current state budget shortfalls. Rather, pension funding is one of several key structural budget problems that states must address. Most states have generally been responsible in funding pensions, and a large number are already starting to address pension fund shortfalls.

State and local governments need to provide adequate pay and benefits to attract and retain high-quality teachers, nurses, police, and other employees. Currently, the pay of public-sector employees is somewhat below that of their private-sector counterparts: “apples-to-apples” studies find that public workers are paid 4 to 11 percent less than private-sector workers with similar education, job tenure, and other characteristics.

In some cases public employees have foregone wage increases and received benefit enhancements instead. But while benefits are more generous and secure for public employees than for most private-sector workers, factoring in the value of these benefits does not entirely eliminate the gap between the compensation of state and local employees and their private counterparts in comparable jobs.

State and local governments thus should use all the tools at their disposal to solve their pension problems without severely reducing public pensions, which would be an overreaction to current funding issues and hinder states’ and localities’ efforts to attract and keep the workers that teach our children and protect our lives and homes.

[Download “A Common-Sense Strategy for Fixing State Pension Problems in Tough Economic Times” a research report published by the Center on Budget Policy and Priorities.]

Social Security: Vital to Alaska Women and Families

As debate heats up on Capitol Hill about the federal budget, it seems nothing is safe. Conservatives are taking aim at programs vital to women and their families — including Social Security, Medicare, Medicaid and other key domestic programs — while proposing trillions of dollars in additional tax cuts for the wealthiest Americans.

What these programs really mean to the individuals and families who rely on them needs to become a bigger part of this debate. The National Women's Law Center put together state-by-state fact sheets providing detailed information on the impact that Social Security has for women and their families in each state including statistics on the number and types of Social Security beneficiaries, average benefits, and the number of people lifted out of poverty by Social Security benefits.

[Download the Alaska state fact sheet for state-specific information.]

Some Basic Facts on State and Local Government Workers

The public workforce has been the subject of much discussion lately — and, unfortunately, much misinformation.  A brief report published by the Center on Budget and Policy Priorities presents some basic facts about state and local employees:  the jobs they perform, how many there are, how their pay compares with pay in the private sector, and how much states and localities — mainly school districts, cities, and counties — spend on pay and benefits.

[Directly excerpted from the Center on Budget and Policy Priorities. View the full brief: Some Basic Facts on State and Local Government Workers.] 

A Role for Defined Contributi​on Plans in the Public Sector

The Center for Retirement Research at Boston College has released a new Issue in Brief:

 “A Role for Defined Contribution Plans in the Public Sector”

 The brief’s key findings are:

• In recent years, several states have shifted from defined benefit (DB) to defined contribution (DC) pension plans.
• Many of the new plans are “hybrids” with a slimmed down DB plan and a minimal DC plan, which shifts substantial risk to employees.
• A better hybrid design could offer a full DB plan up to an income cap and “stack” a DC plan on top for those with higher incomes.
• The “stacked” approach would give those with modest incomes the full protection of a DB plan while limiting taxpayers’ commitment to those with higher incomes.

View the full brief: A Role for Defined Contributi​on Plans in the Public Sector.

Center for Economic and Policy Research - Pension Return Calculator

“Most pension funds assume a 10 percent rate of return, the historical average,” said Dean Baker, a co-director of Center for Economic and Policy Research (CEPR). “There are practically no plausible scenarios in which stocks will only produce a 4.5 percent rate of return, especially when one considers our current low price-to-earnings ratios.”

“The Pension Return Calculator” allows users to manipulate several variables --including nominal rates of return on stocks and GDP growth-- to show price-to-earnings ratios from 1962-2050 in an attempt to achieve a risk-free, 4.5 percent rate of return.

The calculator demonstrates that attempts to scale back public pensions based on pessimistic expectations of rates of return are misguided. Barring another downturn of the magnitude of the Great Recession, it is highly unlikely that the rate of returns on public pensions will not be near the historic average.

[Excerpted from the Center for Economic and Policy Research. Access CEPR's Pension Return Calculator here.]

New Research Highlights Value of Pension Investments for Communities

Pensions invest over $20 billion; 186 million jobs created from 1995-2010

As state and municipal governments seek to address serious budget challenges, pension critics are advancing misdirected proposals to cut or eliminate defined benefit retirement plans. Countering the critics’ claims that pensions impose only costs, American Rights at Work Education Fund released “Creating Good Jobs for Our Communities: Pension Dollars at Work,” a brief demonstrating how private and public pension funds help drive the economies of communities through investments that, in addition to producing solid returns, create good jobs.  

Download the brief here.

Nine In Ten Americans Say U.S. Retirement System Under Severe Stress, Want Washington To Ease The Way For Employers To Offer Pensions

A new report "Pensions and Retirement Security 2011:  A Roadmap for Policymakers," released by the National Institute on Retirement Security finds that 84% of Americans are anxious about retirement and generally have low retirement expectations:

• The U.S. retirement system is under stress and in need of reform. Nearly 9 out of 10 Americans believe the retirement system is under stress and needs to be reformed. More than 80% of Americans believe that recent economic downturn exposed the risks of America's retirement system. Nearly three-quarters of Americans believe that stock market volatility makes it impossible for the average American to predict how much money they will have in their nest egg when they retire, underscoring the flaws of the current retirement system. 

• Pensions are reliable and relieve retirement anxiety. Some83% of Americans indicated that those with pensions are more likely to have a secure retirement, and 72% of those who have a pension are confident it will be there at retirement. Moreover, 75% believe the disappearance of pensions has made it harder to achieve the "American Dream."

The full report is available here.