Center for State and Local Government Excellence Posts Report on State Pension Plans and Retirement Income of Public Employees

A new report from the Center for State and Local Government Excellence and the National Association of State Retirement Administrators gauges the effects of changes in state pension plans on the retirement income of retirees.

According to a release, effects of Pension Plan Changes on Retirement Security calculates the projected initial retirement benefit of state and local employees before and after recent modifications were made to pension design and financing. The report was produced with financial support from AARP.

Since 2009, nearly all states have responded to fiscal constraints by making changes to their retirement plans, including increasing employee contributions, reducing benefits, or both. Other states have modified their plan design, choosing to transfer more of the risk associated with providing retirement benefits from the state and its political subdivisions to its employees.

The report also summarizes interviews conducted with public sector human resource executives and retirement experts from 10 states that have made significant pension plan changes (Alabama, California, Colorado, Hawaii, Missouri, Ohio, Pennsylvania, South Carolina, Tennessee and Virginia).

The report's key findings include:

-Pension reforms reduced the amount of the initial retirement benefit new employees can expect to receive compared with that of existing employees. Reductions ranged from less than 1 percent to 20 percent and do not account for inflation or cost-of-living adjustments that have been reduced or eliminated in many states.

-New employees can expect to work longer and save more to reach the benefit level of previously hired employees.

-Hybrid plans adopted in five states produce a range of estimated retirement incomes. Holding investment returns constant, the determining factor in the size of the hybrid benefit is employee and employer contributions. For this analysis those states with higher required contributions produce a higher benefit than those whose statutory contribution rates are lower.

-Changes to retirement plans include an increase in the number of years included in the final average salary calculation (21 states); a reduction in the multiplier (12 states); and a change to both of these variables (nine states).

Although newly hired employees will need to work longer or save more to have the level of retirement benefit that employees previously earned, state human resource officials say that wage stagnation and the increased cost of benefits for employees is a more immediate concern. To address the savings gap, many plan administrators are providing enhanced financial education and sponsoring and promoting supplemental savings opportunities.

The Center for State and Local Government Excellence identifies best practices and conducts research on competitive employment practices, workforce development, pensions, retiree health security, and financial planning.

More information:

www.nasra.org/Files/JointPublications/Effects of Pension Plans on Retirement Income.pdf

www.slge.org

www.nasra.org

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