News

2017 Public Pension Funds Investments
Source: NASRA

 

Public pension fund assets are invested in diversified portfolios that include public equities; bonds issued by the U.S. and foreign governments and corporations; real estate; alternatives, such as private equities, hedge funds, and infrastructure; and other asset classes. Over time, earnings on investments constitute the largest portion of public pension fund revenues, which also include contributions from employers and employees.

Public pension asset allocations typically are developed as part of a process that considers the plan’s liability stream, or projected benefit payments, expected revenue from contributions, and investment earnings.

Based on the latest information from the Public Fund Survey, the average public pension fund asset allocation is as follows:

  • Public equities: 47.6%
  • Fixed income: 23.2%
  • Real estate: 6.6%
  • Alternative investments: 18.3%
  • Cash & Other: 4.3%

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3 Reasons to File for Social Security on Time
Source: The Motley Fool

Few topics are more controversial among financial planners than when you should claim your hard-earned Social Security benefits. Sometimes, claiming as soon as you possibly can is a smart move, while other times, waiting until the last possible moment can pay off for you and your loved ones. Somewhere in between is what the Social Security Administration considers to be “on time,” but is it the right time for you? You’ll learn about three reasons it might be, but first, let’s look more closely at what on time really means.

When is “on time” for Social Security?

The SSA looks at the definition of full retirement age to determine whether someone is filing on time. Your full retirement age depends on your year of birth, and you’ll find a quick guide in the chart below.

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2017 Public Pension Funding Study
Source: Milliman White Paper

 

The Milliman Public Pension Funding Study annually explores the funded status of the 100 largest U.S. public pension plans and reports the plan sponsor’s own assessment of how well funded a plan is. As of June 30, 2017, the aggregate funded ratio is estimated to be 70.7% as assets experienced healthy growth. Market performance since the last fiscal year ends have been strong, and we estimate that aggregate plan assets have jumped to $3.44 trillion as of June 30, 2017.

 

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Don’t Dismantle Public Pensions Because They Aren’t 100 Percent Funded
Source: NCPERS

Have you ever heard that policymakers want to close participation in a pension plan to all new hires? How about cutting benefits and increasing employee contributions, or converting defined-benefit pensions into do-it-yourself defined-contribution plans?

In the last decade or so, state and local policymakers have been doing exactly these things. In essence, they have been slowly dismantling public pensions. Why? Because, they argue, pension plans are underfunded and cannot be sustained. They also argue that taxpayers cannot afford public pensions. These are misguided arguments and actions. Ability to pay depends on whether an entity can meet its cash flow needs and whether the total assets of the entity – the public employer – are a reasonable fraction of its total liabilities.1

We have addressed the issue of whether taxpayers can afford public pensions in our earlier research,2 which shows that public pensions impose little or no burden on taxpayers. If anything, we have demonstrated that public pensions are revenue-neutral or revenue-positive. In this study, we will focus on whether the ability of public pension plans to meet their benefit obligations has anything to do with their current underfunded status.

New research shows that funding status has little correlation with a pension fund’s ability to pay the promised benefits. Building on Tom Sgouros’s recent work,3 John Mctighe et al.4 argue that full funding of public pensions is not only a misguided goal but also waste of taxpayer money. As long as annual contributions and investment income exceed benefit payments, pension funds can continue to operate in perpetuity regardless of their funding status. Tom Sgouros, of Brown University, demonstrates this through a visual simulation.5

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State-Based Retirement Initiatives and the AGES Principles
Source: American Academy of Actuaries

Introduction
Over the past several years, a number of states have enacted or proposed state-based retirement initiatives in an effort to expand retirement coverage among private-sector workers.1 In a typical state-based program, any employer above a certain size would be required to offer its employees the option to enroll in the state’s program if the employer does not offer its own retirement plan. Participating employers would be responsible for collecting employee contributions via payroll deduction and remitting those contributions to the plan. However, employer contributions would not be required. The responsibility for maintaining the program and selecting administration and investment service providers would remain with the state.

As of this writing, eight states have enacted legislation to implement such retirement programs for workers in those states: California, Connecticut, Illinois, Maryland, Massachusetts, New Jersey, Oregon, and Washington. In addition, Vermont has enacted legislation to establish a state-facilitated multiple employer plan, a different type of plan than those established by other states (see the “Public Policy and Regulatory Framework” section below). More than 30 other states have legislation in various stages of development or consideration or are performing feasibility studies on such programs.

 

 

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Illinois Supreme Court’s health care ruling will cost city retirees
Source: Sun-Times

 

More than 20,000 city employees and retirees have been dealt a crushing blow that could cost them dearly, but end up saving Chicago taxpayers $130 million a year.

In a six-word ruling on Thanksgiving eve, the Illinois Supreme Court refused to hear the retirees’ appeal of a state Appellate Court ruling that essentially upheld Mayor Rahm Emanuel’s now-completed, three-year phase-out of retiree health care coverage and a 55 percent city subsidy for anyone who did not retire by Aug. 23, 1989.

Clint Krislov, an attorney representing the retirees, said the decision means those retirees are entitled only to bare-bones protections outlined by lower courts.

 

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The Three Rs of Teacher Retirement: Recruitment, Retention, & Retirement
Source: National Institute on Retirement Security

As early as the turn of the 20th century, American legislators seemed to understand the importance of teacher quality to students’ education. A 1917 report on public education noted that “a school-teacher’s work is personal, direct, and positive. It works for the good or the ill of each pupil.”1

Defined benefit (DB) pension plans were first introduced for teachers in the United States to help with the recruitment of high quality educators, and as an incentive to keep those educators in the teaching profession. By 1916, some form of retirement plan was made available to public schoolteachers in 33 states. It was thought that such a retirement system might serve two purposes: 1) bringing more diverse, and highly qualified teachers into the profession; and 2) creating a more productive workforce that actually saves public employers money, as one dollar in pension benefits was seen as worth more than a dollar in salary.2

Today, the vast majority of public school teachers in the United States participate in a traditional DB pension plan.

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2018 IPPFA Illinois Pension Conference – Registration Now Open
Source: IPPFA

Come join the IPPFA for its 2018 IPPFA Illinois Pension Conference, held May 1st through May 4th, 2018 at the Embassy Suites by Hilton, East Peoria, IL (the subject matter of this conference meets or exceeds state mandated requirements for trustee education; CEU’s are issued through Northern Illinois University).

For over 30 years, the IPPFA has offered public pension trustees the best and latest in trustee training education, striving to offer the best available training. Please join us for sessions in ethics, investment procedures, fiduciary responsibilities, and legal and legislative updates, all presented by nationally renowned speakers.

Register NOW

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Employee Contributions to Public Pension Plans
Source: NASRA Issue Brief

Unlike in the private sector, nearly all employees of state and local government are required to share in the
cost of their retirement benefit. Employee contributions typically are set as a percentage of salary by
statute or by the retirement board. Although investment earnings and employer contributions account for a
larger portion of total public pension fund revenues (see Figure 1), by providing a consistent and predictable
stream of revenue to public pension funds, contributions from employees fill a vital role in financing
pension benefits.i Reforms made in the wake of the 2008-09 market decline included higher employee
contribution rates in many states. This issue brief examines employee contribution plan designs, policies
and recent trends.

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