https://www.americancityandcounty.com/wp-content/themes/acc_child/assets/images/logo/footer-logo.png
  • Home
  • Co-op Solutions
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcast
  • Resources
    • Back
    • Resources
    • Webinars
    • White Papers
    • Events
    • How to Contribute
    • Municipal Cost Index – Archive
    • Equipment Watch Page
    • American City & County Awards
  • Magazine
    • Back
    • Digital Editions
    • Reprints & Reuse
    • Advertise
  • About Us
    • Back
    • About Us
    • Contact Us
    • Privacy Statement
    • Terms of Service
American City and County
  • NEWSLETTER
  • Home
  • Co-op Solutions
  • Commentaries
  • News
  • In-Depth
  • Multimedia
    • Back
    • Podcasts
  • Resources
    • Back
    • Webinars
    • White Papers
    • Events
    • How to Contribute
    • American City & County Awards
    • Municipal Cost Index
    • Equipment Watch Page
  • Magazine
    • Back
    • Digital Editions
    • Reprints & Reuse
    • Subscribe to GovPro
    • Manage GovPro Subscription
    • Advertise
  • About Us
    • Back
    • About Us
    • Contact Us
    • Cookie Policy
    • Privacy Stament
    • Terms of Service
  • newsletter
  • Administration
  • Economy & Finance
  • Procurement
  • Public Safety
  • Public Works & Utilities
  • Smart Cities & Technology
acc.com

Commentaries


Commentary

Preserving pension promises in a DC world

Preserving pension promises in a DC world

Metlife Vice President of Institutional Income Annuities Roberta Rafaloff instructs government workers on how they can add the benefirs of a defined benefits pension to a defined contribution plan.
  • Written by American City & County Administrator
  • 31st May 2017

By Roberta Rafaloff

For a majority of state and local government workers, a traditional defined benefit (DB) pension has been their primary – if not only – career retirement plan. In recent years, however, this began to change when a variety of fiscal challenges compelled many public plan sponsors to reform their pension plans (primarily for new employees but in some cases for current workers, too) and/or shift the financial burden of retirement savings onto employees by offering only a defined contribution (DC) plan. While the contributory plan design common in public DB plans has played a major role in moderating this trend, it is nonetheless expected that by 2042, 19 percent of the public sector workforce will rely on DC plans, according to a 2014 Center for State & Local Government Excellence issue brief.

While the benefits—and consequences—of moving to a DC model may differ for each public plan, one truth is universal. Intrinsic within the DB is the embedded provision of lifetime income for employees, while the DC, as originally designed, is a retirement savings program with no built-in mechanism with which retirees can ensure their money will last. While the promise of a guaranteed income benefit has been synonymous with DB plans, so too is the financial albatross these plans have created for state and local governments, not unlike the private sector plan sponsor experience.  

The value of lifetime income

Time and again we see evidence that retirees living on a steady income stream fare better than those who are given, and opt for, a lump-sum distribution from an employer-sponsored retirement plan. The money lasts longer and relieves retirees from the responsibility of managing their entire portfolio, which becomes more challenging as retirees age. Not coincidentally, the Melbourne Mercer Global Pension Index, which benchmarks the top retirement “income” systems around the world, recommends that at least 50 percent of accumulated retirement benefits be taken in an income stream. In the U.S., the ability to choose to take at least some portion of one’s retirement savings as a steady, guaranteed income stream for life is the critical advantage lost for many workers in the transition to DC plans.  

The good news is that among the public-sector DC plans that exist today, many recognize the importance of replicating the income benefit that was a mainstay in DB plans and offer lifetime income options to participants as part of the replacement or successor DC plan. To give a sense of how receptive public-sector DC plans are to lifetime income, MetLife offers income annuities to 163 state and local municipalities. The Florida Retirement System Investment Plan and the Wichita Retirement Systems are just two examples. For federal workers, the Federal Thrift Savings Plan, the world’s largest DC plan, also makes lifetime income options available for retiring plan participants, including the ability to partially annuitize their retirement savings. 

 

Simplicity is key

A spectrum of choice is available for adding guaranteed lifetime income to a DC plan. When offered as plan distribution options, immediate income annuities and qualifying longevity annuity contracts (QLACs) can make the most sense because they are relatively simple to understand and generally deliver higher guaranteed payouts than other lifetime income solutions. While payments for immediate income annuities begin within one year of retirement, QLACs, which are a type of longevity insurance, allow retirees to begin receiving lifetime income benefits in their later years (e.g., age 80 or 85), protecting continued income if individuals experience a longer than average life span. Amounts up to $125,000 in qualified savings (or 25 percent of a participant’s account value, whichever is less) can be used to purchase a QLAC, and those monies are then deducted from the balances used to calculate required minimum distributions—allowing the retiree to potentially grow his or her other assets.

Indeed, the lifetime income promises of the DB can live on. Just don’t forget to include them in your DC plan.

 

Roberta Rafaloff is the Vice President of Institutional Income Annuities at MetLife, a global provider of insurance, annuities and employee benefit programs.

 

_____________

To get connected and stay up-to-date with similar content from American City & County:
Like us on Facebook

Follow us on Twitter
Watch us on YouTube

Tags: Economy Commentaries Commentary

Related


  • How cities and states can benefit from Biden’s infrastructure, climate proposals
    It’s no secret that U.S. infrastructure could use some improvement. Power outages cost the U.S. economy billions annually. Cities like Jackson, Miss., and Flint, Mich., have suffered from a lack of clean water. Climate volatility has made people, property and infrastructure in states like Texas, New York and Louisiana vulnerable to catastrophic storms, while the […]
  • Four ways city and county governments can use technology to protect revenues and engage citizens
    There are many words to describe what we collectively went through in 2020, both positive and negative, with clear lessons hopefully learned along the way. One of those words that found its way into our lexicon was “pivot.” It spoke to those who were either forced to adapt or recognized an opportunity to move away […]
  • Small city, big impact: why economic development is the best tool to tackle COVID-19
    Local government is not typically known for its creativity or nimbleness. But like all organizations—public and private—the pandemic exposed a myriad of challenges and opportunities. One opportunity and challenge for all cities that became immediately obvious in March 2020 was the importance of a strong, responsive and innovative economic development program. State and local governments […]
  • Senate American Rescue Plan includes more than $60 million in direct aid for counties
    The U.S. Senate’s version of the 2021 American Rescue Plan maintains the $350 billion in state and local aid that was in the House bill, including $60.1 billion in direct aid to counties. The U.S. Senate begin debating its version March 4. The House of Representatives passed its version of the $1.9 trillion bill Feb. […]

Related Content

  • The 21 neediest American cities in 2021
  • Report: Many governments facing revenue shortfalls due to COVID-19
  • How 2020 accelerated government reliance on new sources of economic data analytics
  • Revenue realities for state and local governments in the time of Coronavirus

Twitter


AmerCityCounty

Reimagining local government: What the pandemic taught us about adaptability, courage and resiliency dlvr.it/Ry12Z6

19th April 2021
AmerCityCounty

📣 Registration is Officially Open for #IWCE2021! 📣 It's been more than two years, but IWCE is finally headed back t… twitter.com/i/web/status/1…

19th April 2021
AmerCityCounty

EPIC announces incentive program to help small municipalities replace lead pipes dlvr.it/RxqtsL

16th April 2021
AmerCityCounty

Clearing a path to multicloud as the new foundation for digital government dlvr.it/Rxqcgp

16th April 2021
AmerCityCounty

Records Management Rapid Response Checklist dlvr.it/RxqR8L

16th April 2021
AmerCityCounty

Overcoming 5 Common Challenges Facing Facility Managers dlvr.it/RxphXL

16th April 2021
AmerCityCounty

Bridging the digital divide: Three questions community leaders should consider dlvr.it/Rxlth0

15th April 2021
AmerCityCounty

Procurement department puts post-pandemic work plan in place to ensure continued productivity dlvr.it/RxgxjN

14th April 2021

Newsletters

Sign up for American City & County’s newsletters to receive regular news and information updates about local governments.

Resale Insights Dashboard

The Resale Insights Dashboard provides model-level data for the entire used equipment market to help you save time and money.

Municipal Cost Index

Updated monthly since 1978, our exclusive Municipal Cost Index shows the effects of inflation on the cost of providing municipal services

Media Kit and Advertising

Want to reach our digital audience? Learn more here.

DISCOVER MORE FROM INFORMA TECH

  • IWCE’s Urgent Communications
  • IWCE Expo

WORKING WITH US

  • About Us
  • Contact Us

FOLLOW American City and County ON SOCIAL

  • Privacy
  • CCPA: “Do Not Sell My Data”
  • Cookies Policy
  • Terms
Copyright © 2021 Informa PLC. Informa PLC is registered in England and Wales with company number 8860726 whose registered and Head office is 5 Howick Place, London, SW1P 1WG.
This website uses cookies, including third party ones, to allow for analysis of how people use our website in order to improve your experience and our services. By continuing to use our website, you agree to the use of such cookies. Click here for more information on our Cookie Policy and Privacy Policy.
X