From the 2010 Spring Newsletter by the National Association of State Retirement Administrators (www.nasra.org) comes the following:
The year 2008 may be fading in our collective memories, but its effects on public pension plans linger, and retirement systems and their plan sponsors continue to assess and respond to its consequences. These responses generally revolve around efforts to address higher pension costs needed to amortize higher unfunded liabilities resulting from the market decline. However, other factors are driving the need for changes at many plans, especially a) chronic failure by some plan sponsors to make required contributions, and b) approval of benefit levels that plan sponsors either would not or could not pay for.
Retirement systems and pension plan sponsors have multiple levers to bring a pension plan into actuarial balance, including adjustments to plan designs, financing structures and actuarial methods. The long timeframes over which retirement plans operate also preclude the need to react by making hasty changes that may not be well considered.
Long timeframes also enable relatively minor adjustments to have a major cost impact over time. This is analogous to a ship adjusting its course only slightly, yet arriving at a destination far away.
Another variable affecting the environment in which public plans and their sponsors consider changes is the array of public pension legal protections. These take the form of constitutional, statutory, and case law provisions. They vary widely and their actual efficacy in many cases is uncertain. Equally varied are political and moral protections of pension benefits-however undefined and uncodified-that are relevant considerations in efforts to revise pension benefit formulas.
Of course, changes to pension benefit structures and financing arrangements are not new; in fact, they have become a mainstay of the public pension community. What is different now is the number and magnitude of changes. Post-2008, the pace of reforms to public pension benefits and financing arrangements around the country has quickened, and the extent of changes as a group appears to be more extensive than before.
For example, more employees are being required to increase their contributions, and age and years-of-service requirements to qualify for retirement are being raised. Many systems also are making adjustments to cost-of-living adjustment provisions.
These changes are occurring in an environment of sharply higher public and media awareness of the gap that has developed in retirement benefits between public employees and those employed outside the public sector. Never has this gap been so wide, which should concern everyone, for two reasons: first, retirement security benefits everyone, and we all are affected when others' retirement security is lacking. Also, this gap in retirement benefits has provoked a response by some to take away the retirement benefits of those who have them, as if that will improve the situation. The appropriate response to this gap should be to pursue policies that promote retirement security for everyone, not that erode such security for those who still have it. The goals of preserving retirement security for public employees and promoting it for others can be advanced by remaining mindful of the core elements of retirement plan design that promote the reliable delivery of retirement income.
Such elements include:
These basic elements of public pension plan design should not be taken for granted, but rather, recognized as components of retirement plan design that promote the reliable delivery of retirement income. As changes continue to be considered and made to pension benefits for employees of state and local government, these core elements should be inherent in pension plan designs for all segments of our economy. After all, retirement security benefits everyone. The full newsletter can be accessed at www. nasra.org/newsletters/2010SpringNewsletter. pdf. The Research Report is located on page 7.