Not all pension plans are in trouble
The Washington-based National Institute on Retirement Security (NIRS) released a study in June 2011 that identifies common elements of public sector defined benefit pension plans that remained well-funded through two severe economic downturns. The research report examines selected statewide public pension plans to identify features that enabled those plans to remain sustainable and affordable.
Dr. June Peng, associate professor at the University of Arizona, led the study, which was co-authored by Ilana Boivie, an economist and NIRS director of programs. Researchers analyzed the funding policies, benefit designs and economic assumptions for the following six well-funded public pension plans:
- Delaware State Employees Pension Plan
- Idaho Public Employee Retirement Fund
- Illinois Municipal Retirement Fund
- New York State Teachers' Retirement System
- North Carolina Teachers & State Employees Retirement System
- Teacher Retirement System of Texas
They identified the following six features of plan design and process that helped the plans remain affordable and sustainable over the long term:
- Employer pension contributions pay the full amount of the annual required contribution, and maintain stability in the contribution rate over time;
- Employee contributions help share in the cost of the plan;
- Beneﬁt improvements, such as multiplier increases, are actuarially valued before adoption and properly funded upon adoption;
- Cost of living adjustments (COLAs) are granted responsibly, for example through an ad hoc COLA that is amortized quickly, or an automatic COLA that is capped at a modest level;
- “Anti-spiking” measures ensure actuarial integrity and transparency in pension beneﬁt determination; and
- Economic actuarial assumptions, including both the discount rate and inﬂation rate, can reasonably be expected to be achieved over the long term.