Work Longer, Save More: How Changes In State Pension Plans Affect Retirement Income Of Public Employees
WASHINGTON, April 25, 2014 /PRNewswire-USNewswire/ -- 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.
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 wide 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.
Read the full report on the Center's website (http://slge.org/publications/effects-of-pension-plan-changes-on-retirement-security) or on NASRA's website (http://www.nasra.org/Files/JointPublications/Effects of Pension Plans on Retirement Income.pdf).
About the Center for State and Local Government Excellence
The Center for State and Local Government Excellence helps state and local governments become knowledgeable and competitive employers so they can attract and retain a talented and committed workforce. The Center identifies best practices and conducts research on competitive employment practices, workforce development, pensions, retiree health security, and financial planning. The Center also brings state and local leaders together with respected researchers and features the latest demographic data on the aging workforce, research studies, and news on health care, recruitment, and succession planning on its website, www.slge.org.
About the National Association of State Retirement Administrators
The National Association of State Retirement Administrators is a nonprofit, nonpartisan association for the directors of the nation's largest public retirement systems. NASRA members oversee systems holding nearly $4 trillion in assets to fund pension and other benefits for nearly two-thirds of the state and local government workforce. To learn more, visit www.nasra.org.
SOURCE Center for State and Local Government Excellence