The future of public pensions

7/26/2019 The future of public pensions

http://slidepdf.com/reader/full/the-future-of-public-pensions 1/24

National Press Foundation, Aging and Retirement:

Understanding Generational Changes

The Future of Public PensionsJune 1, !"1#

Greg $ennis%irector, Public &ector Retirement &'stems Pro(ectThe Pe) Charitable Trusts



2

• More than 40 active, evidence-based research projects

• Projects include public safety, immigration, elections, transportation, pensions, andstate tax incentives

• ll follo! a common approach" data-driven, inclusive, and transparent

Pe)*s Public &ector Retirement &'stems Pro(ect

• #esearch since 200$ includes %0-state trends on public pensions and retiree benefitsrelating to funding, investments, governance, and employee preferences

• &echnical assistance for states and cities since 20''( P since 20'2

The Pe) Charitable Trusts



)

•Pension *unding and *iscal Metrics + xample of hallenges in Pennsylvania

• .nvestments - /ey &rends

• #eform pdate

• /ey &a1ea!ays

+erie)



4

Pension Funding and

Fiscal $etrics



%

97 98 99 00 01 02 03 04 05 06 07 08 09 10 11 12 13$0.0

$0.5

$1.0

$1.5

$2.0

$2.5

$3.0

$3.5

$4.0

0%

1%

2%

3%

4%5%

6%

7%

8%

9%

10%

Assets Liabilities Column1

The 2014 funding gap is estimated at $937 billion and 2015 is estimated atover $1 trillion.Soures! State and pension plan "#%s and pension plan atuarialvaluations

D o l l a r s

i n

T r i l l i o n s

ension

Costsas!"are

o#$e%enu

e

4%

8%

&tate Pension Funding Ga- .Aggregate of " &tates/Gro)ing Unfunded 0iabilities 0ead to udget Cro)d +ut



&tate and 0ocal Pension %ebt as a &hare of Gross%omestic Product

Soures! The ederal %eserve and &.S. 'epartment of "ommere (ureau of )onomi #nal*sis


http://slidepdf.com/reader/full/the-future-of-public-pensions 7/24$

INCREASING FISCAL DISCIPLINE

I N C R E A S I N G F

I S C A L

H E A L T H

Soures! State and pension plan "#%s and pension plan atuarialvaluations

Fie &tates Are elo) "2 on Funding and Pa'ing ills



Penns'lania: A 344 &)ing in 15 'ears 6 0argest in U&7nestment Return &hortfalls, Underfunding, Unfunded enefit 7ncreases

Soures! S)%S and +S)%S atuarial valuations and "#%s

2000 2014

-$57B

$20B



2010 2011 2012 2013 2014 2015& 2016 2017 2018 2019 2020 2021 2022$0

$2'000

$4'000

$6'000

$8'000

$10'000

$12'000

A(t 120 Collar e)u(tion a*ment #or +n#un)e) Liabilit* ,-/e(te) ormal Cost o# enets ,-/e(te)

A(tual Contribution ai)

Billions

, The -2015 +S)%S emplo*er ontribution as $2/59/731/000 9 of full #%" S)%S atuarial data is not *et available for-2015.Soures! #nal*sis b* The +e "haritable Trusts and The Terr* roup based on data from S)%S and +S)%S atuarial valuationsand "#%s

!tate an) Tea("er ension Contributions

Penns'lania 6 Pensions Costs u- 3 oer 8ears


http://slidepdf.com/reader/full/the-future-of-public-pensions 10/24'0

• Pension debt no! reported on balance sheet

• nnual #e5uired ontribution 6#7 no longer a re5uired disclosure

• dditional data re5uirements improves comparability, allo! for ne! metrics + Pe! is introducing a 89et morti:ation; metric as a supplement to the #

+ 9et morti:ation compares government contributions to the pension plan to the amount re5uired to paydo!n pension debt

Ne) Re-orting Re9uirements under GA&


http://slidepdf.com/reader/full/the-future-of-public-pensions 11/24''

Net Amortiation 6 Poorl' Funded &tates Continue to 0ose Ground

35.0%

30.0%

25.0%

20.0%

15.0%

10.0%

5.0%

0.0%

5.0%

10.0%

15.0%

11.64637211586540%

8.51668981741945%

7.86175054121789%

6.57055656785422%5.98708994336466%5.80437648658821%

2.75844513249936%2.82824950878605%2.43524814817018%3.96986848299634%4.08548172858648%4.26197083199505%4.59123940977552%4.71161046231794%

8.36643443832210%8.50452711187556%

CT

The

bottom

10 states

are 62%

funded

T! "o# 10

s"$"!s $! 84%

&'n(!(

PA)

The net amorti6ation measure ompares ho muh states are ontributing to their pension plansompared to ho muh pension debt is epeted to gro. # positive number indiatesontribution poliies are su8ient to pa* don pension debt hile a negative number indiatesunfunded liabilities are epeted to gro.

N!" A*o"i+"ion s S! o& Co,!!( Poll

./

N

IL

&enns*lania is /roe(te) to a("iee /ositie amortiation in 3 *ears as a result o# a 2010 re#orm to

in(rease #un)in.



7nestments ; <e' Trends


http://slidepdf.com/reader/full/the-future-of-public-pensions 13/24')

&hift from onds to &toc=s and Alternaties

!2: lternatives

"2:5uities

ubli( ension nestments' 19542014Allo(ations to e:uities an) alternatie inestments "ae in(rease)';"ile t"ose toe)in(ome inestments "ae )e(line)

1954 1964 1974 1984 1994 2004 20140%

20%

40%

60%

80%

100%

-:uit* an) alternaties <ie) in(ome an) (as"

In,!s"*!n" llo"ion

Soure! &.S. (oard f overnors of the ederal %eserve S*stem/ inanial #ounts of the &nited States/ 1954 to 2014 +e #nal*sis of State inanial %eports:2014 The +e "haritable Trusts



2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

30

20

10

0

10

20

30

40

T+C! <e)eral=!tate D lan >e)ian er#orman(e ,% !? 500

P!&o*n! %

>olatilit' in Returns 6 &?P "" and TUC& Pension &tate $edianF8 !"";!"1


http://slidepdf.com/reader/full/the-future-of-public-pensions 15/24'%

61%@ 61%

28%

11%

S A,!3!F/ 200 Ass!" Allo"ion

-:uit* <ie) n(ome Alternaties

51%

24%

25%

US AverageFY 2014 Asset Allocation

7ncreased Use of Alternaties

ubli( ensions n(lu)e >ore Alternatienestments+se o# alternaties "as more t"an )ouble) ;it" 30% in(rease in#ees

Soure! #nal*sis b* the +e "haritable Trusts of State "omprehensive #nnual inanial %eports/ +ubli 100/ and theederal %eserve inanial #ounts of the &nited States:2014 The +e "haritable Trusts


http://slidepdf.com/reader/full/the-future-of-public-pensions 16/24'

Re-orting Practices for Performance >aries Across &tates


http://slidepdf.com/reader/full/the-future-of-public-pensions 17/24'$

Pe)*s Recommendations on 7nestment Trans-arenc'ased on Reie) of Funds $anaging +er @2 of &tate Pension Assets

• Ma1e investment policy statements transparent and accessible<

• dopt comprehensive fee-reporting standards, including disclosure of carried intereston =4>? in private e5uity fees<

•@isclose bottom-line 8net of fees; performance<

• xpand reporting to include 20-year results + most funds disclose '0 + given long-term nature of pension liabilities<

• .nclude performance by asset class 6stoc1s, bonds, private e5uity, hedge funds7<



Reform U-date


http://slidepdf.com/reader/full/the-future-of-public-pensions 19/24'

•43 states have implemented some 1ind of reform bet!een 200 and 20'%<

• Many reforms changed plan provisions for ne! !or1ers, but 1ept the basic structureof the plan<

• number of states passed reforms that affected current !or1ers or retirees

bet!een 200 and 20'%" + '% states reduced ABs for retired employees<

+ 3 reduced ABs for active employees only<

+ ) states increased employee contributions for either current or ne! members 6at least 24increased contributions for current members7<

• >et!een 200 and 20'%, states passed reforms that changed the mandatory

benefit design for ne! employees< Averall, 20 states have a mandatory or optionalalternative benefit design<

&ummar' of Recent Reforms in &tates

Soures! ;ational "ounil of State <egislatures/ ;#S%#/ The +e "haritable Trusts



C Lo(al ;orBers onl*

*bri) >an)ator*=)e#ault

C >an)ator*=)e#ault

RI

DC >an)ator*=)e#ault

otes• n a))ition' more )etaile) ersions o# t"is table #rom A!A an) C!L maBe note o# o/tional alternatie states /lans in t"e #ollo;in states

Colora)o ,DC' <lori)a ,DC' >ontana ,DC' ort" DaBota ,DC' E"io ,DC an) "*bri)' an) !out" Carolina ,DC.• n (ases ;"ere a state "as more t"an one alternatie /lan' t"e /lan t*/e ;it" t"e reater number o# /arti(i/ants is marBe) on t"e ma/. T"is

in(lu)es n)iana' ;"ere ;orBers ("oose bet;een a "*bri) an) DC /lan@ >i("ian' ;"ere state ;orBers are in a DC /lan an) tea("ers are in a"*bri) /lan@ an) +ta"' ;"ere ;orBers ("oose bet;een a "*bri) an) DC /lan.

• Teas /roi)es a (as" balan(e /lan to oer 400'000 lo(al ;orBers t"rou" t"e stateFs Teas >uni(i/al etirement !*stem an) Teas Count*an) Distri(t etirement !*stem.

Soures! ;"S</ ;#S%#

ide >ariet' of A--roaches in &tates14 states (urrentl* "ae /lans ;it" alternatie )esins t"at are man)ator* or )e#ault #or at leastsome state ;orBers.

20

http://www.nasra.org/files/Issue%20Briefs/NASRAHybridBrief.pdf






Pensions in the Ne)s

Cli&oniC"anes toinestment

strate* an) #ee)is(losure

N! !s!

!u/reme Court ruleon CELA ("anes@s(al ("allenesremain

Illinois n(Ci3oLeal ("allenes

P!nnsl,ni!tate an)muni(i/alre#orms

Al6*Goernan(e an)instateinestments

.!n"'

e#orms #ortea("erretirement s*stem

ln(9<is(al ("allenesan) manaement#ees

Conn!"i'"Debate on #un)/ension s*stem

:!3on9<is(al (on(erns)ue to reersal o#CELA ("anes

D!"oi";I!tu)* o#/lan o#a)ustment

.nss<is(al ("allenes

<i3iniLeislatie(ommitteeealuatinre#orms to )ate

son,ill!;FLro/ose) sales ta#or /ensions

Ai+onConstitutionalamen)ment onballot



2)

<e' Ta=ea)a's



• Pension *unding challenges remain % years after Creat #ecession

• .ncreased attention to investments strategies and managing ris1

• #eform discussions continue nation!ide

<e' Ta=ea)a's

The future of public pensions

Documents

Transcript of The future of public pensions