Month: November 2017

2017 federal legislation update

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From health care to pensions to taxes, 2017 has been an active year for Congress. Although most of these pieces of legislation have yet to pass, PERA continues to closely monitor their progress.

H.R. 173 – Middle Class Health Benefits Tax Repeal Act of 2017
Introduced on January 26, 2017, H.R. 173 would repeal the 40 percent excise tax (also referred to as the “Cadillac Tax”) on certain high-cost health plans created by the Affordable Care Act. The tax, currently scheduled to begin in 2020, would affect anyone who has some or all of their health care costs paid for by their employers beyond a set threshold. According to Fight the 40, a coalition of private and public sector groups who are opposed to it, roughly 82 percent of employers expect the tax to affect them within the first five years, and 178 million Americans rely on employer-sponsored health care. The bill has not yet been assigned to any committee and likely will not be voted on during the current Congress, but it has picked up 208 cosponsors, including Colorado Reps. Mike Coffman (R-06) and Ed Perlmutter (D-07).

H.J. Res. 66 – Disapproving the rule submitted by the Department of Labor relating to savings arrangements established by states for non-governmental employees
This resolution, which became law when President Trump signed it in May, prevented the Department of Labor’s rule allowing state governments to create retirement savings systems for private sector employees exempt from the Employee Retirement Income Security Act (ERISA). Several states have already created such plans, and officials in at least one state (Oregon) have said the rule’s revocation will not necessarily halt them from implementing their plans. A bill introduced earlier this year in the Colorado Legislature that would have created a similar system failed in the state Senate, and it remains unclear what the passage of H.J. Res. 66 will portend for future state efforts to create retirement savings systems for private sector residents who lack access to them.

Department of Labor’s Fiduciary Rule
This rule from the Obama Administration would have required financial advisers to be fiduciaries to their clients, meaning they would have been legally required to act in their clients’ best interests. Just this past Monday, the Department finalized a rule that will delay the implementation of its main provisions from going into effect on January 1, 2018, to July 1, 2019. While this delay does not necessarily mean the end of the rule, proponents of the fiduciary requirements say it’s all but certain the rule will never be fully implemented.

S. 915 and H.R. 1205 – Social Security Fairness Act of 2017
The latest attempt by members of Congress to repeal the Windfall Elimination Provision (WEP) and Government Pension Offset (GPO) provisions of Social Security were introduced by Sen. Sherrod Brown (D-OH) and Rep. Rodney Davis (R-IL-13) in February. As previously mentioned in PERA on the Issues when the bills were introduced, while Congress has long been searching for a solution to making WEP and GPO more fair for public employees who collect partial Social Security benefits, their outright repeal faces a difficult road ahead since it will have a negative impact on the financial condition of the already troubled Social Security trust fund.

H.R. 10 – Financial CHOICE Act
This bill, which would drastically alter banking and financial regulations put in place following the 2008 global financial crisis, passed the House 233-186 on June 8, 2017. Public pension systems, including Colorado PERA, wrote to members of Congress in May urging them to oppose the measure due to their concerns about the bill’s effects on protections for investment markets. Although there was no companion bill introduced in the Senate, one piece of H.R. 10—which dealt with transparency of Exchange-Traded Funds (ETFs)—passed out of the Senate, was approved by the House, and signed into law. It remains to be seen whether another bill will be introduced, or if Congress members will wait until 2018 to try again.

H.R. 1124 – State and Local Pensions Accountability and Security Act
Currently awaiting consideration by the House of Representatives, this bill would prohibit the use of federal money to fund depleted state and local pension systems in the event they enter insolvency. This measure was touted in a letter to House Speaker Paul Ryan (R-WI) from Rep. Mark Walker (R-NC), who heads the Republican Study Committee. Although it appears unlikely the bill will gain any traction before the end of the current Congressional session, it has picked up nine cosponsors.

H.R. 1 – Tax Cuts and Jobs Act
Arguably the biggest piece of legislation currently being considered by Congress, the first major overhaul of the U.S. tax code in more than 30 years passed the House on a vote of 227-205 on November 16, 2017. The Senate version of the bill is scheduled to have a hearing this week, and once passed will be reconciled with the House version in a conference committee. While retirement does not figure to play as large of a role in the legislation as originally thought (early versions of the bill were rumored to include “Rothification” of 401(k) contributions, among other potential retirement changes) public plan sponsors are closely monitoring a provision that would change how public retirement systems pay taxes on certain investment earnings. Public pensions like PERA are not currently subject to the unrelated business income tax (UBIT) paid on certain income generated by companies in which public pensions have invested retirees’ dollars. While it’s possible the provision will be stripped away during the reconciliation process, legislators must abide by a budgeting requirement that the bill cost no more than $1.5 trillion over 10 years.

See PERA Executive Director Greg Smith’s letter on UBIT sent to members of the Colorado Congressional Delegation.

PERA staff selected to serve

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Three members of PERA’s leadership team have recently been tapped to serve national organizations. These appointments and elections underscore PERA executives’ retirement, investment, and financial industry knowledge.

Amy McGarrity, PERA Chief Investment Officer (CIO), has been named to serve on the U.S. Securities and Exchange Commission’s (SEC) newly created Fixed Income Market Structure Advisory Committee. McGarrity joins other retail and institutional investors to “provide advice to the SEC on the efficiency and resiliency of fixed income [bond] markets and identify opportunities for regulatory improvements,” according to the SEC’s news release.

McGarrity was named PERA CIO in March of this year after a nationwide search. McGarrity previously worked for PERA as the Deputy Chief Investment Officer and first came to PERA after the merger of the Denver Public Schools Retirement System in 2010. McGarrity is a CFA Charterholder and has served on the Public Company Accounting Oversight Board (PCAOB) Investor Advisory Group.

Lawrence Mundy, PERA Chief Financial Officer (CFO), was recently elected to the board of directors of the Public Pension Financial Forum (P2F2). P2F2’s mission is to “serve its membership through education, pension advocacy, and networking by promoting financial excellence for public pension plans.”

Mundy was selected as PERA CFO in February 2017 and first came to PERA in 2012. Mundy is a licensed CPA in Colorado and also serves on the Colorado Society of CPA’s Government Issues Forum as well as on the GFOA Committee on Retirement and Benefits Administration.

In October, Gregory W. Smith, PERA Executive Director/CEO, was elected to serve as a member of the Executive Committee of the National Council on Teacher Retirement (NCTR). NCTR was formed in 1924 and is “dedicated to safeguarding the integrity of public retirement systems in the United States and its territories to which teachers belong and to promoting the rights and benefits of all present and future members of the systems.”

Smith was named PERA’s sixth executive director in 2012 and, prior to leading PERA, was PERA’s General Counsel and Chief Operating Officer. Smith currently serves as the Chair of the Board of Directors of the National Institute on Retirement Security (NIRS) and as a Co-Chair of the Board of Directors for the Council of Institutional Investors (CII).

See also PERA on the Issues: PERA General Counsel Elected by National Pension Group

Retirement Roundup: Pensions are keeping promises

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A digest of timely information and insight about finance, investing, and retirement.

Public Pensions Have Been Able to Pay Promised Benefits | PLANSPONSORSome policymakers want to close participation in a public pension plan to all new hires, cut benefits and increase employee contributions, or convert defined benefit (DB) plan pensions into defined contribution (DC) plans. They usually cite the underfunding of public pension plans as the reason for these ideas. New research shows that funding status has little correlation with a pension fund’s ability to pay its promised benefits. Michael Kahn, director of research for the National Conference on Public Employee Retirement Systems (NCPERS) used data from the annual survey of public pensions by the U.S. Census Bureau for 1993 to 2016 and other data and found that during the last quarter century or so, state and local pension plans have always been able to meet their benefit and other payment obligations.

Retirees say ‘Ugh’ to Medicare Shopping |Squared Away BlogIn terms of popularity, reviewing Medicare plans during the open enrollment period ranks right up there with doing taxes. Retirees on Medicare view healthcare as their most burdensome expense. But they are less likely to comparison shop for Medicare plans than for their groceries and gas, even though plan shopping would probably save more money.

Funds fighting effort to add UBIT measure |Pensions & InvestmentsAs Congressional Republicans rush to pass tax reform before 2018, public pension plan officials are determined to see one new idea not make it to the finish line: the House plan for a new tax on unrelated business income from direct investments, such as real estate and private equity. The Internal Revenue Service already applies the unrelated business income tax, known as UBIT, to state colleges and universities. But its longstanding silence on application of that tax to other state entities has led public pension plans to believe it does not apply to them, particularly since their gross income already is excluded under another part of the IRS code. Under the House bill, being exempt under one section of tax code would not spare entities from UBIT on income from direct investments. With no grandfathering period, public pension funds would be facing a whole new world in January if the measure is passed.

The $275K retirement expense you can’t afford to ignore |CNBC
Before you retire, give your health-care financial plan a checkup. A healthy 65-year-old couple retiring this year can expect to spend $275,000 to cover health-care costs in retirement, according to Fidelity. Those calculations include premiums, cost-sharing provisions and out-of-pocket costs associated with Medicare parts A, B and D — but don’t include other health expenses, such as over-the-counter medications, dental services, and long-term care.

Survey Shows Geopolitical Risk Tops Pension, Asset Managers’ Concerns |Chief Investment OfficerInstitutional investors see geopolitical stability as the biggest short- to medium-term risk to the global economy, more than inflation, growth rates, and central bank policy combined, according to a report from asset manager PineBridge Investments. In a survey of pensions, consultants, and asset management professionals, PineBridge found that 55 percent of pension professionals, and 54 percent of asset managers, saw geopolitical risk as the biggest threat to the economy. “The results surprised me, as I believe geopolitical risk is currently quite low by recent standards,” said Steve Cook, co-head of emerging markets fixed income at PineBridge Investments, in a release. “Presumably, respondents are nervous with regard to Korea, Iran, and other potential flashpoints.”

Some Women Attain an Enviable Status: 401(k) Millionaire | The New York Times
Accumulating $1 million in retirement savings is symbolic, even if it means different things to different people. It represents an aspirational amount of wealth to some, financial security to others or a milestone on the way to greater savings still. Of course, in a nation where 44 percent of the population does not have $400 saved for an emergency expense, reaching $1 million may seem unimaginable. For a small but growing number of working women, however, it has become a reality.

Phase 2 of PERAtour: What we heard

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Phase 2 of PERAtour, PERA’s statewide community outreach effort, wrapped up on November 2. The goal for this second round of community meetings was to share details about a recommendation the PERA Board is preparing to make to the Colorado General Assembly in the 2018 legislative session which begins on January 10. This recommended package would improve PERA’s risk profile and funded status, and improve PERA’s ability to pay benefits over the long-term. To learn more about the Board’s proposal designed to shorten the length of time it will take the plan to reach full funding, click here.

Since kicking off the second phase of PERAtour in Grand Junction on October 16, PERA staff have traversed the state to meet with more than 2,000 members, retirees, and other stakeholders in Alamosa, Aurora, Boulder, Colorado Springs, Denver, Durango, Fort Collins, Greeley, Pueblo, and Sterling. For those not able to attend a meeting in-person, we held an interactive webcast (a recording of which can be found here), and solicited questions and comments via our dedicated website and phone line.

Over the course of PERAtour, the attendees at our community meetings, as well as the countless others who chimed in via the comment form at PERAtour.org, have posed a variety of thoughtful questions and comments about the provisions of the Board’s package, and the impact they will have now and in the future. Here is a sampling of some commonly asked questions we heard:

Why is the Board recommending these changes?
PERA’s current risk level is too high and funded status too low. According to the signal light framework put into place in 2015, most PERA divisions are classified in the “orange” status, which means a corrective action should be developed. The Board’s proposed changes will result in reducing PERA’s risk profile and improving its funded status, immediately and in the long‐term.

Why weren’t changes under Senate Bill 1 sufficient to ensure PERA’s long-term sustainability?
Since 2010, the reforms contained in Senate Bill 1 have supported PERA’s mission to promote the long-term financial security of its members while maintaining the stability of the fund. However, changes in demographics (people are living longer) and economics (lower future financial market expectations) since Senate Bill 1 passed have impacted PERA’s financial standing, increasing the risk to members, taxpayers, and all of Colorado. The recommended package proposed by the PERA Board will reduce this risk and improve PERA’s funded status.

Should I retire earlier than I had planned?
The decision to retire should not be driven by the proposed changes. There are no advantages to retiring early.

Will PERA employees, Trustees, and legislators be participating in the recommended changes?
Yes. PERA employees and legislators are PERA members and retirees, as are the member-elected Trustees on the Board. Further, member-elected Trustees serve without compensation.

Will the Board still be recommending these changes in light of the recent gains in the stock market?
Yes. While global stock markets may be doing well this year, the long-term expectations for the global financial markets are not as optimistic.

Shouldn’t PERA be reducing costs before cutting benefits?
PERA’s administrative costs are very low and every expenditure fulfills some aspect of PERA’s fiduciary duty to the membership. An international pension benefits administration benchmarking firm evaluates PERA’s administrative costs and the level of customer service PERA provides each year and produces a report card that we’re proud of. Read more about this evaluation here. In addition to low administrative costs, as a large institutional investor, PERA manages the assets on behalf of 560,000 members for a low cost as well.

If you have any questions or comments about the Board’s recommended package, please fill out the submission form on the PERAtour.org website. All feedback on the proposed changes will be shared with the Board at their next meeting on November 17.

Board proposal calls for clarity in salary, parity in benefits

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PERA members want their retirement system to be fair and equitable. So it was no surprise to PERA staff and the Board of Trustees when, in the first phase of PERAtour, 87 percent of participants agreed that retirement benefits should be aligned with career paths and contributions.

To enhance fairness and equity, the Board is looking to bring clarity to the issue of retirement salary and parity to how members earn retirement benefits. As part of its comprehensive package of recommendations to the State Legislature, the Board addresses two calculations that are inequitable in their current form and place unneeded risk on the fund.

PERA-includable salary

The Board proposes redefining PERA salary to include employee contributions to tax-advantaged Section 125 and 132 plans. These are contributions employees make to flexible spending accounts or so-called cafeteria plans to pay for expenses such as dependent care, health care premiums, health care expenses, or transportation.

Members who participate in these plans have lower salary reported to PERA and therefore make lower PERA contributions. However, as members near retirement, they often seek to maximize their highest average salary and stop participating in these plans in order to report a higher salary to PERA.

This practice creates a disparity between how much some members are paying into the PERA system while working, and how much of a benefit they receive in retirement. This has a negative impact on the funding of PERA. It also creates a disincentive for members to participate in tax-advantaged plans near the end of their working careers.

The Board’s proposal would redefine PERA salary to include all members’ full salary, inclusive of any contributions to 125 and 132 plans, beginning on January 1, 2020. The change would increase fairness, but it would also align PERA with its peers. A recent survey of 28 statewide pension systems found that PERA is the only plan that excludes these tax-advantaged contributions from the salary amounts reported for retirement benefits.

More information on the Board’s proposal to make Section 125 and 132 contributions includable in PERA salary is available from PERAtour here.

Accrual of PERA service credit

The Board also proposes redefining how service credit in PERA is earned by moving from a salary basis to a percentage of full-time employment worked.

Currently, PERA members earn one month of service credit for each month that they earn a minimum salary of 80 times the federal minimum hourly wage (80 x $7.25=$580). As a result, part-time employees who earn this minimum salary each month receive the same amount of service credit as a full-time employee. A part-time employee who becomes full time later in a career could then receive a retirement benefit equivalent to an employee who had worked full time for an entire career. This again creates a disparity between how much some members and their employers pay into the PERA system and the benefit the member will receive in retirement.

The Board’s proposal would redefine the accrual of service credit from the current salary threshold of $580 a month to a percentage of full-time employment. Under this change, a half-time employee would receive half a month of service credit, regardless of the amount of salary earned. This proposal would require employers to define the hourly requirement for full-time employment and PERA would base service accrual on a percentage of the employer’s definition. The Board’s recommendation does not modify how service credit is allocated for educators who work a contract period that is less than 12 months.

Together, these changes would mean that dollars paid in to PERA would be equitable with dollars paid out, ensuring that members’ benefits are directly correlated to the contributions they and their employers make.

More information about which parts of compensation are currently eligible to be included in PERA contributions is available here.

More information about the Board’s proposal to change both calculations is available here.

More information about the Board’s full package of recommendations is available here.

Retirement Roundup: Where you retire matters

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A digest of timely information and insight about finance, investing, and retirement.

Where Should You Live in Retirement? |The Wall Street JournalIt’s one of the most basic questions people ask themselves when they start planning for retirement: Where am I going to live? It’s also one of the most crucial questions, and one that, surprisingly, many people don’t give a lot of thought to. Sure, they ask themselves some cursory questions—especially about the weather and affordability. But they rarely delve very deeply, even though making the right choice can offer a greater chance of having a more fulfilling life.

Potential Senate tax tweak would curb pretax 401(k) catch-up contributions | CNBCWorkers over age 50 would no longer be able to make catch-up contributions on a pretax basis to their retirement plans under a new amendment to the GOP’s Senate version of the tax bill. This amendment would permit workers over age 50 to contribute up to an additional $9,000 each year to their retirement plans, but it would require that these contributions be made to Roth accounts. Those are accounts where taxes are paid up front. Currently, employees over age 50 can contribute up to $6,000 in additional savings each year to their 401(k) plan and do so on a pretax basis. That’s on top of the current annual $18,000 limit.

Debt in Retirement Affects Confidence |PLANSPONSOR
Americans think it is bad thing for those in retirement to be carrying debt, the LIMRA Secure Retirement Institute found in a survey. However, data from the New York Fed Consumer Credit Panel indicates that those between the ages of 65 and 80 increased their debt load by 40% between 2003 and 2015. The LIMRA Secure Retirement Institute found that 51% of retirees with debt are confident they will be able to live the lifestyle they want, but for retirees without debt, that soars to 70%. Sixty-six percent of Americans view a mortgage held during one’s working years as “good” debt, but only 40% think this is true for those in retirement. Two-thirds (66%) of Americans do not think it is a good idea for people to carry mortgage debt into retirement.

Kentucky Governor Seeks Redo of Teacher Pension Analysis |U.S. News & World Report
Gov. Matt Bevin’s efforts to overhaul Kentucky’s ailing pension systems took another twist Tuesday when his administration asked consultants to redo their analysis of his proposed changes to retirement benefits for public school teachers. The request comes days after consultants forecast Bevin’s pension bill would cost Kentucky taxpayers an extra $4.4 billion over 20 years to fund teacher pensions. That projection assumes more teachers would retire early and the state would earn less on investments. Bevin’s administration signaled Tuesday it doesn’t like the assumptions used by the consultants in their analysis of how the governor’s proposal would impact the Teachers’ Retirement System. The redo request comes as the Republican governor considers convening a special legislative session in Frankfort to deal with one of the country’s worst-funded public pension systems.

Pension? Not for Corrupt Lawmakers Anymore in New York |GoverningStarting next year, long-time lawmakers convicted of corruption in New York can no longer count on their pension. On Tuesday, voters overwhelmingly approved a ballot measure that gives judges the right to trim or revoke the pensions of any public servant convicted of a job-related crime. The measure was largely driven by outrage over the corruption scandal that forced the resignation of New York Assembly Speaker Sheldon Silver and Senate Majority Leader Dean Skelos in 2015. Both long-time lawmakers put in for their substantial pensions just days after their convictions. (Both of their convictions were later overturned on a technicality.)

Should we allow mandatory retirement? | MarketWatch
Will employees be as effective at their jobs at age 75 as they were at age 55? An employer generally cannot require an employee to retire in most professions, even at a respectable age such as 68; and mandating a retirement age as a condition of employment would be regarded as engaging in age discrimination. How will employers deal with what is sure to be an aging (and more expensive) workforce as life expectancies increase?

Colorado PERA Plan Design Compared to Other Non-Social Security Public Employee Retirement Plans

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The PERA Board of Trustees has recommended reforms to PERA designed to reduce the overall risk profile of the plan and improve PERA’s funded status. In light of these recommendations, it can be helpful to see how PERA as it exists today compares to similar plans across the country and how the Board’s proposal for future changes might compare as well. Comparing the PERA benefit to that of public employees in others states can also help ensure that Colorado’s public employers can attract and retain talented employees.

In a time of shifting economic and fiscal realities, PERA is not alone in considering reforms that will impact funding levels and benefit structures over time. Significant changes have been proposed to Kentucky’s public pension systems, and in Ohio, the board of the retirement plan for teachers recently reduced the cost-of-living adjustment to zero.

(More information on the Board’s recommendation is available at a dedicated website, PERAtour.)

Looking at various features of similar public pension plans across the United States – that is, large public plans with members who, for the most part, do not participate in Social Security – shows that PERA is somewhat typical. Features such as member and employer contribution rates, cost of living adjustments (COLAs) or automatic increases, and benefit multipliers vary across plans, but Colorado’s plan tends to fall in the middle of a range of these features.

The charts below indicate how these public retirement plans compare, and where PERA fits in – both today and if the Board’s proposal were to be implemented in the future.

One area where PERA is an outlier is in excluding Section 125 and 132, or so-called “Cafeteria Plan” and flexible spending account deductions from PERA-includable salary. In a survey conducted by the National Association of State Retirement Administrators, Colorado is the only one of 28 plans surveyed that excludes these deductions.

(It should be noted that the data presented here are simplified for purposes of this discussion and caution must be used in interpreting the information. For example, in Colorado, State Troopers pay a higher employee contribution because they can retire sooner than other members. While a few of those exceptions are noted, in most cases the most common or average data point for a given plan is used. Our sources include data compiled by PERA staff in February of 2017 and comparison data from the Wisconsin Legislative Council from December, 2016.)

Member contribution rate by state
StateRate as percent of payroll
Connecticut Teachers6
Alaska Public Employees6.75
Maine7.65
Colorado (current)*8
Louisiana State Employees8
Louisiana Teachers8
Illinois State Universities8
Alaska Teachers8.65
Illinois Teachers9
Kentucky non-University9.105
California9.205
Colorado proposal*10-11
AVERAGE of current plans10.34
Massachusetts State Employees11
Massachusetts Teachers11
Ohio Public Employees14
Ohio School Employees14
Ohio Teachers14
Nevada14.5
Missouri14.5
Texas15.1

*Note that Colorado State Troopers currently contribute 10 percent of payroll. The Board proposal would increase contributions for members hired before January 1, 2020, by an additional 3 percent above current contribution rates and for those hired on or after January 1, 2020, by an additional 2 percent. This is because for new hires starting in 2020, and for members with less than five years of service credit as of January 1, 2020, more years of salary will be considered to calculate an average salary used to determine the total retirement benefit and the retirement age will be higher.

Employer contribution rate by state
StateRate as percent of payroll
Massachusetts State Employees12.41
Ohio Public Employees14
Ohio School Employees14
Ohio Teachers14
Missouri14.5
Nevada14.5
Texas15.1
Colorado (current)*19.13
Maine19.29
Massachusetts Teachers19.61
Colorado (proposed)*21.13
Alaska Public Employees24.84
Louisiana Teachers26.3
California26.58
Alaska Teachers29.27
Connecticut Teachers30.35
Kentucky non-University30.755
Illinois Teachers36.64
Louisiana State Employees37.8
Illinois State Universities45

*More detailed information on PERA contribution rates may be found in this fact sheet. Note that while the SAED is paid by employers, it is to be funded by foregone wage increases. The figure here is for the State Division, the AED and SAED, minus 1.02 percent which is dedicated to the Health Care Trust Fund. Contribution rates shown in this table generally reflect teachers, higher education faculty, school employees, and regular state employees.

The multiplier in a defined benefit plan is a factor used to determine the monthly benefit. An example of PERA’s multiplier is 2.5 percent times years of service times the Highest Average Salary (HAS). For a member with 30 years of service credit, the monthly benefit would be 75 percent (30 times 2.5 percent) multiplied by the HAS. (The PERA Board reviewed changes to the multiplier, but decided to maintain the current 2.5 percent factor.)

Benefit multiplier by state
StateBenefit multiplier*
Maine2
Connecticut Teachers2
Ohio Teachers2.2
Illinois State Universities2.2
Illinois Teachers2.2
Nevada2.25
Texas2.3
California2.4 (varies by age)
Alaska Public Employees2.5 (varies by service)
Alaska Teachers2.5 (varies by service)
Colorado (current and proposed)2.5
Louisiana State Employees2.5
Louisiana Teachers2.5
Massachusetts State Employees2.5
Massachusetts Teachers2.5
Ohio Public Employees2.5 (varies by service)
Ohio School Employees2.5 (varies by service)
Missouri2.5
Kentucky non-University3 (varies by service)

*Where noted, plans have variable multipliers based on age or years of service at retirement. Those listed are the highest possible multipliers earned.

Annual increase provisions by state
StateRate as percent of payrollNotes*
Ohio Teachers0Fixed/Simple
Texas0Ad hoc
Illinois Teachers1.25Indexed/Simple
Illinois State Universities1.375Indexed/Simple
Colorado (proposed)1.5Fixed/Compound
Kentucky non-University1.5Fixed/Compound
Louisiana State Employees1.5Ad hoc/Typically simple
Louisiana Teachers1.5Ad hoc/Typically simple
Missouri1.5Indexed/Compound
Connecticut Teachers1.75Indexed/Compound
Alaska Public Employees1.95Indexed/Compound
Alaska Teachers1.95Indexed/Compound
California2Fixed/Simple
Colorado (current)2Fixed/Compound
Maine2.2Indexed/Compound
Massachusetts State Employees3Ad hoc, Indexed/Simple
Massachusetts Teachers3Ad hoc, Indexed/Simple
Nevada3Indexed/Compound
Ohio Public Employees3**Fixed/Simple
Ohio School Employees3Fixed/Simple

*Annual increase provisions vary by state. Those that are indexed are tied to various measures, including Consumer Price Index (CPI), or Social Security benefit increases. Ad hoc increases may be recommended by a board or set by the state legislature. The COLA PERA pays is compounding, increasing the base benefit each year. However, some systems pay COLAs that are not compounded (simple interest) and do not increase the base benefit for the next year’s COLA payment.

**This figure does not reflect the recent decision of the Ohio Public Employees Retirement System to recommend a reduction in its cost of living adjustment to a 2.25 percent cap.

Report: Defined Benefit Plans Increase Retention and Reduce Turnover Costs

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New study finds defined benefit plans give educational employers an effective recruitment tool and ensure retirement security for teachers.

Seems like a logical conclusion. So why are critics of defined benefit (DB) plans saying DB plans are ineffective and that they shortchange teachers?

The National Institute on Retirement Security recently released a detailed study conducted by Dr. Christian Weller, Professor of Public Policy at the University of Massachusetts Boston. The report, “Win-Win: Pensions Efficiently Serve American Schools and Teachers,” presents facts that show how DB pension plans are good public policy, in addition to enjoying overwhelming public support.

A quick summary of Dr. Weller’s findings:

  • DB pensions provide important incentives for effective teachers to stay in the teaching profession.
  • DB pensions ensure teachers save for retirement – avoiding the “do-it-yourself” investment strategy that does not work for everyone.
  • DB pensions reduce income inequality for low- and middle-income earners due to the current structure of the tax system.
  • DB pensions provide more retirement income and are less risky when compared to defined contribution plans.

The report concludes that DB plans are a key component of teacher compensation and it’s good public policy to offer them to educators.

Read the full report.

See PERA on the Issues, Independent Analysis: PERA Wins Gold

Retirement Roundup: Don’t Count on Social Security

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A digest of timely information and insight about finance, investing, and retirement.

This is why you shouldn’t count on Social Security | MarketWatchThe Social Security system is expected to be exhausted by the early 2030s, experts say. Americans are still paying into the system every paycheck. What will happen, however, will be a cut to the benefits Americans receive. The government has noticed. The Social Security Administration put out a note last year saying Social Security and Medicare are both facing long-term shortfalls under the current structure, and that they together accounted for 42 percent of federal program expenditures in the fiscal year of 2016. In its 82 years, Social Security alone has collected almost $20 trillion — and it’s already paid out $17.1 trillion, leaving about $2.8 trillion in its two accounts (the Old-Age and Survivors Insurance Trust Fund and the Disability Insurance Trust Fund) at the end of last year. The government expects the accounts to steadily decline until they are depleted in 2034. Last December, the House Ways and Means Social Security Subcommittee Chairman proposed a 31 percent cut in benefits as one way to relieve this over-exhaustion.

What the battle over 401(k) plans means for your retirement | CNBCAny changes to taxes on your 401(k) savings won’t change two key tenets of planning for retirement: Save early and save as much as possible. That’s according to retirement experts even as 401(k) plans have gotten drawn into the tax-reform debate in Washington. Right now, workers who have access to 401(k) plans will be able to invest up to $18,500 next year, while participants age 50 and over will be able to put away $6,000 more. Under current rules, investors will not pay taxes on those contributions until a later date. That could all change if some lawmakers have their way. Limits for pretax contributions to 401(k) plans could be lowered to $2,400 as Congress looks to make up for other tax cuts.

Op-Ed: There’s a better solution on pensions | Lexington Herald-LeaderProposed pension reforms in Kentucky leave in place the huge unfunded liability of anywhere from $33 billion to $84 billion. The General Assembly and local governments will have to find about $1 billion and $400 million, respectively, of additional revenue (taxes) or spending cuts each year, causing additional strains on Kentucky’s beleaguered public institutions and services. The impoverished state, full of talented and industrious citizens, will only be further impoverished. When the next downturn in the economy occurs, Kentucky’s bond ratings will be further reduced.

The Difference Between Retirement and Successful Aging | Forbes
While retirement may provide more time to work out and prepare healthier meals, it doesn’t come with any special fairy dust that suddenly provides extra motivation, desire, or discipline. In fact, retirement tends to magnify the existing behaviors and habits of people, not change them. Therefore, retirement doesn’t foster or lead to successful aging; it can actually work against it.

Americans’ Greatest Fear About Aging is Covering Long Term Care Costs | PLANSPONSORNot having enough money to pay for health care or long-term care is the greatest fear adults have about aging, Genworth found in a survey of 1,200 people. Despite these overwhelming apprehensions, only 20 percent of Americans have taken any steps towards figuring out how to finance or actually financing long-term care costs. In addition, only 50 percent feel they should be responsible for their own care as they age, with the remainder feeling it is the responsibility of the government, their family or community or faith-based organizations.

Ted Benna, father of the 401(k), thinks tax reform that favors Roth plans is ‘pretty stupid’ | Pensions & Investments
Ted Benna was a pioneer of the 401(k) plan, having developed the concept of pre-tax 401(k) deferrals. He adopted the first-ever 401(k) savings plan in 1981 for the Johnson Cos., where he worked as a retirement benefit consultant. Now, debate is swirling on Capitol Hill to reduce the pre-tax contribution limit from the current $18,000 annual limit as part of a Republican tax reform package set to be unveiled this week. Any contributions beyond the pre-tax limit would be mandated to go to Roth, or after-tax, accounts, a policy known as “Rothification.”

“I think it’s pretty stupid in terms of retirement policy,” Mr. Benna, now a consultant at an eponymous firm, told InvestmentNews. “There’s major concern about a retirement crisis that’s staring us in the face. (The 401(k) plan) is the plan, whether people like it or hate it, that’s the primary way for the average American to be saving for retirement.”