Pentagon Probes for Details on Proposed Military Retirement Overhaul

military

Last month, the Military Compensation and Retirement Modernization Commission released a long-awaited report containing a series of policy proposals designed to decrease the cost of military benefits, including retirement benefits.

One of the more controversial proposals: the phase-out of the military’s current defined-benefit plan in favor of a hybrid plan that features characteristics of a 401(k).

[Proposal details can be read here.]

Now, the Pentagon is digging deeper into the report, and officials are asking for access to the data that was used to form the proposals.

From the Military Times:

“[The commission] claims they’ve done all the analysis but we have not been able to see what’s inside that analysis, so I’m anxious to see it . … We are interested in looking at how the commission came to the conclusion that [its proposed retirement recommendations] would be a better option,” [Defense Department Chief of Naval Personnel Vice Adm. Bill] Moran said.

Military officials are receptive to the idea, Moran said, noting that the Defense Department last year offered its own proposal for military retirement reform that includes some similar features.

Still, Moran said he’d like more information about the commission’s claim that troops would prefer the proposed system and it would not affect retention.

“There are aspects we like and aspects we need more analysis on,” Moran said.

Top personnel officials have been working around the clock to analyze the controversial proposals.

Why is the Pentagon examining the proposals so closely?

The Pentagon’s official view of the report will hold sway on Capitol Hill when it comes time for lawmakers to vote on the proposals.

 

Photo by Brian Schlumbohm/Fort Wainwright PAO

Military Pension Cuts a Tough Sell in Congress

military

Last month, the Military Compensation and Retirement Modernization Commission produced a report that recommended a series of changes to the military’s retirement benefit system.

Among the proposals: shrinking retirement pay by about 20 percent, and phasing out the military’s current defined-benefit plan, in favor of a hybrid plan that features characteristics of a 401(k).

Another proposal however, would make benefits richer for long-time military members.

But Congress remained skeptical on Wednesday. From the Military Times:

Some lawmakers questioned the piece of the new retirement system that would offer troops a lump-sum “continuation pay” at 12 years of service. The commission’s data claiming that career troops would accrue more total benefits under the proposed system assumes that individual troops invest that money into their personnel retirement account and not touch it until age 59 and a half.

Rep. Susan Davis, D-Calif., doubted that all troops will make that decision.

“What if that assumption doesn’t bear out?” she said. “Is the whole program impacted if they don’t do that? Does it rest on that assumption?”

[…]

Rep. Joe Heck, R-Nev., chairman of the personnel panel of the House Armed Services committee, who is also a trained physician, raised concerns about the commission’s claim that Tricare is reimbursing doctors at rates lower than government-run Medicare and fair-market value.

“As a health-care provider for over 30 years, I question that assumption,” Heck said.

Military compensation is a controversial area for cuts, so it’s unclear if the political will exists to move forward with any of the commission’s proposals.

However, John McCain said last month he was open to reforming the military’s retirement system. From Military.com:

Sen. John McCain, chairman of the Senate Armed Services Committee, took the opposite position, saying he was open to possible changes in pay and benefits.
“I can probably support a number of changes that need to be made,” McCain said without giving specifics. He singled out the military health care system, which he said “has to be reformed.”

Read more on the proposed changes here.

Photo by Brian Schlumbohm/Fort Wainwright PAO

Omaha Approves Pension Changes; New Plan Goes Into Effect March 1

Omaha

On Tuesday, the Omaha City Council approved a major change in the city’s pension system.

Starting on March 1, all new city hires will be placed into a pension plan that resembles a hybrid between a 401(k) and a traditional pension, as opposed to the defined-benefit plan currently in place.

Public safety workers are not affected.

The new plan, called a “cash balance plan”, will operate like a 401(k) in that its eventual payout will largely depend on the market.

But it does guarantee a minimum retirement benefit, much like a defined-benefit plan.

Current employees will keep their pension plan. But going forward, they will have to contribute a higher percentage of their paychecks to the system.

More from the Omaha World-Herald:

The pension changes, approved Tuesday by the Omaha City Council, mark a significant step in Mayor Jean Stothert’s goal of reducing employee costs and solving the city’s pension crisis.

And, Stothert said, the new plan will protect the city from future unfunded pension debt.

“We knew we could not just accept a contract that would fix the financial problem this year or the city’s budget this year,” Stothert said. “We had to look into the future to prevent those things from happening.”

[…]

These changes are intended to prevent the pension system from running out of money, which the civilian pension plan was previously projected to do within about 20 years.

Now, according to city estimates, it will be fully funded in that time frame.

Public safety workers aren’t affected by this change, because they work under different contracts.

But change could be coming soon: the city is currently in the midst of negotiating new contracts for police and firefighters.

Louisiana Teachers Pension Fires Back at Think Tank Report

teachers

The National Council on Teacher Quality released a report last week that graded the teachers’ pension funds of every state.

[The full report card can be found here.]

The report slapped the Teachers Retirement System of Louisiana (TRSL) with a C- grade, calling the system underfunded, inflexible and not portable.

But TRSL took issue with its C- grade, and is now firing back at the think tank and disputing the claims that led to the low grade.

TRSL’s response to allegations of being inflexible:

TRSL is flexible and portable. It is TRSL’s position that the traditional defined benefit (DB) plan should remain as the retirement plan option available to Louisiana’s K-12 teachers. The DB plan offers a comprehensive retirement program that provides for normal retirement, disability retirement, survivor benefits, potential for retiree permanent benefit increases, and portability through service credit purchase options and reciprocity.

* Members can purchase service credit that provides mobility among public and private teaching positions and other public sector employment.

* TRSL recognizes reciprocal service credit from any other Louisiana state, municipal, or parochial retirement system, and each of those systems recognizes TRSL service credit.

* TRSL members can also purchase service credit canceled as a result of withdrawal of contributions, teaching service while on leave of absence without pay, teaching service in any nonpublic college or university or school in Louisiana, teaching service in any United States dependent school, substitute teaching service, and military service.

Read the system’s full statement here.

See the National Council on Teacher Quality report here.

 

Photo by cybrarian77 via Flickr CC License

Government Panel Likely to Call For Military Pension Changes

US Army

The Military Compensation and Retirement Modernization Commission has spent the last two years drawing up policy proposals to decrease the cost of military benefits, including retirement benefits.

The Commission will make the proposals to Congress on Thursday, but people familiar with the report have already been revealing its contents to the USA Today and the Military Times.

According to the sources, the report will propose big changes to the military’s retirement system – including the phase-out of the military’s current defined-benefit plan, in favor of a hybrid plan that features characteristics of a 401(k).

More details from USA Today:

The Military Compensation and Retirement Modernization Commission will propose detailed legislation to phase out the current 20-year cliff-vesting pension payable immediately upon leaving service, according to people who have been briefed on the report but requested anonymity before discussing its recommendations.

The plan calls for Congress to create a hybrid system that includes a smaller defined-benefit pension along with more cash-based benefits and lump-sum payments. A significant portion of troops’ retirement benefits would come in the form of government contributions to 401(k)-style investment accounts, those familiar with the report told Military Times.

Specifically, the proposal calls for automatically enrolling each service member in the federal government’s Thrift Savings Plan, or TSP, an investment account that accrues savings. Individual troops will be responsible for managing their accounts, and the money is typically not available for withdrawal without penalty until age 59.5.

But that same proposal would make it easier for troops to keep their retirement benefits after leaving the military. USA Today reports:

By allowing many troops to keep their TSP government contributions after separation, the new proposal would give limited retirement benefits to the vast majority who leave the military before hitting the traditional retirement milestone of 20 years of service, most of them enlisted members who do four, six or eight years, then leave.

That’s a big potential change from a system that now offers retirement benefits to about only 17% of the force — many of them officers — who serve 20 years.

The retirement changes would only apply to new troops – not anyone currently enlisted or retired.

All of these proposals would still need to get through Congress to become law. Military compensation is a controversial area for cuts, so it’s unclear if the political will exists to move forward with the retirement system changes.

 

Photo by Brian Schlumbohm/Fort Wainwright PAO

$700 Million in New York Pension Payments Go to Florida Retirees

cut up one hundred dollar bill

If you want a sense of how many New Yorkers move to Florida in their retirement years, look no further than this number: $708 million.

That’s how much New York’s pension system paid out to Florida residents in 2014; the number represented 7 percent of the system’s total benefit payout.

More from Bloomberg:

Florida is luring more than just New York’s residents. It’s also absorbing a growing pile of cash from the state’s largest pension.

The New York State and Local Retirement System, the third-largest U.S. public plan, paid $708 million to Floridians in fiscal 2014, or about 7 percent of the total, its financial report shows. That’s up about 50 percent in the past decade and was the biggest share of its $1.9 billion of payments out of state.

The obligations weaken the argument that defined-benefit systems prop up local economies as workers retire. The payments to 34,374 Sunshine State residents mirror a migration south to Florida, which last year overtook New York as the third-most-populous state.

“The one group of people who absolutely are taking money from New York with them are government retirees,” said E.J. McMahon, president of the Empire Center for Public Policy, a research group that advocates less government spending. “That check from the state goes wherever they are.”

Part of the reason New Yorkers move to Florida is to escape the winter weather. But retirees also flee to Florida to escape taxes – the state has no individual income tax, and New York residents pay some of the highest taxes in the country.

 

Photo by TaxCredits.net

Pennsylvania Lawmaker Will Reintroduce Plan to Create 401(k) System for All New Public Employees

Pennsylvania

Pennsylvania State Rep. Warren Kampf says he will be reintroducing a bill that would significantly alter the states pension system.

The bill would create two new defined-contribution plans: one for state employees and one for school district employees.

All future state hires would be funneled into these 401(k)-style plans. In other words, the bill would block off the current defined-benefit pension system to all new hires.

More from Pennsylvania Business Daily:

Included in Kampf’s legislation would be a 4 percent employer match and a mandatory employee contribution.

“These are the types of retirement plans the vast majority of our constituents have in their own lives,” Kampf said. “These are plans that businesses across our country use in their budgets to avoid financial obligations that cannot be planned. We are simply asking public employees to follow the same plans used by those in the private sector as a way to stop the growing havoc public pension systems have created for taxpayers all across the country.”

“We must act now,” Kampf said. “Our public pension crisis only deepens as the days go by.”

If the bill were to pass the state’s legislative chambers, it likely wouldn’t get past the desk of new Governor Tom Wolf.

Wolf has said he opposed big changes to the state’s pension system and wants to give previous reforms time to take effect.

 

Photo credit: “Flag-map of Pennsylvania” by Niagara – Own work from File:Flag of Pennsylvania.svg and File:USA Pennsylvania location map.svgThis vector image was created with Inkscape. Licensed under CC BY-SA 3.0 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Flag-map_of_Pennsylvania.svg#mediaviewer/File:Flag-map_of_Pennsylvania.svg

New Congress Likely to Attempt Federal Pension Reform

capital

The New Congress has already proved it has its eye on retirement benefits.

But even with lawmakers’ eyes locked on Social Security, there may be federal pension changes coming down the pipeline.

Many lawmakers are weighing changes to the federal pension system, and new legislation on that front could surface this year, according to two key committee chairmen.

The two lawmakers leading the push for federal pension reform are:

* Rep. Jason Chaffetz, R-Utah, the new chairman of the House Oversight and Government Reform Committee

* Rep. Mark Meadows R-N.C., chairman of a subcommittee of the Committee on Oversight and Government Reform that focuses on the federal workforce.

More on their plans from the Federal Times:

As the new Congress kicks into gear, lawmakers want to take another crack at reforming the civil service.

Rep. Jason Chaffetz, R-Utah, the new chairman of the House Oversight and Government Reform Committee, said he will look at reforming all aspects of the federal workforce, from hiring and firing authorities to pensions and pay.

“We have jurisdiction on the federal workforce and there is no doubt we are going to bring that up,” Chaffetz. “From soup to nuts: Everything from how we hire them on the back end to how we pay them out in the retirement system.”

[…]

As Congress kicks into gear, Meadows believes the committee will be working on legislation for at least some parts of civil service reform.

“I would be very surprised if there were not a number of legislative initiatives and certainly, as a subcommittee chairman, I am prepared to be very proactive,” Meadows said.

What might the reforms look like? A likely bet is legislation that would shift new federal hires into a 401(k)-type plan, as opposed to the current defined-benefit system.

The reforms might be rolled out slowly at first, and could be focused on a particular government agency to study the effects before implementing the reforms across all agencies.

The outgoing Postmaster General has even suggested that any pension reforms be “tested” out on the Post Office first.

The Postmaster said:

Outgoing Postmaster General Patrick Donahoe has called for an end to the defined-benefit pension system and instead shift to a 401(k)-style retirement policy. He said Postal Service reform could also serve as a precursor to governmentwide civil service reform.

“I would encourage Congress to view the Postal Service as a test bed or laboratory of change that might be applied to the rest of the federal government,” Donahoe said.

He said agencies need to be be able to control costs and plan for the future while getting the flexibility to experiment without rigid workforce rules and he said the Postal Service could be at the forefront of that change.

“In today’s world, does it really make sense to offer the promise of a government pension to a 22-year-old who is just entering the workforce? And how reliable is that promise?” Donahoe asked. “I’d like to see the Congress encourage much more experimentation at the federal level. “

No legislation has yet been proposed.

 

Photo by  Bob Jagendorf via FLickr CC License

Examining an Insider’s View of Canada’s Pension Debate

Canada

Last month, the Toronto Star interviewed Tom Reid of Sun Life to get an insider’s view of Canada’s pension debate. The interview can be read here.

This week, Leo Kolivakis of the Pension Pulse blog penned his own critical examination of the debate. The post can be read below.

____________________________________

By Leo Kolivakis, Pension Pulse

Indeed, the Canadian Life and Health Insurance Association is hopping mad and expressed its disappointment on its website.

The problem is that the CLHIA is spreading misinformation and outright lies on the so-called benefits of defined-contribution (DC) plans. They are nowhere near as safe and secure as defined-benefit (DB) plans and they’re a lot more costly, regardless of what Reid claims. They also don’t perform as well over long investment horizons because they don’t invest in private investments.

Go back to carefully read my comment on the brutal truth on DC plans, it’s a real eye-opener. We have become so ill-informed on this debate that we accept the lies and misinformation being spread out there.

As I’ve long argued on this blog, there is a case for boosting DB plans in Canada and elsewhere. The benefits of DB plans are well-known and under-appreciated.

Importantly, boosting DB plans, especially now that Canada’s crisis is just beginning (if you wait for “better economic conditions” you will never enhance the CPP!), makes for good retirement and economic policy. Why? Because if you do it properly, adopting world class governance standards, you will enhance economic activity, increase the revenue from sales taxes and reduce the overall debt of the country.

Of course, the insurance and banking industry don’t agree and will keep pushing the Conservatives to peddle PRPPs as the solution but they’re wrong and they know it. They’re petrified of Canada’s top ten and for good reason, when you look at the evidence, our large DB plans are doing an outstanding job providing their members with safe and secure retirement benefits. No DC plan can compete with our large DB plans.

Are Canada’s top ten perfect? Of course not. If they were, this blog would never exist. But take it from this insider, given a choice between anything Prudential, Sun Life, Manulife or Canada’s big banks have to offer and having your retirement money managed by our large DB plans, you should always opt for the latter. Period.

Does this mean that banks and insurance companies should get out of the retirement business altogether and just leave it up to our large DB plans? No, I believe there is a market for what they’re doing and they can certainly compete with the internal portfolio managers at our large DB plans but they’re going to have to lower their fees and change their angle.

In fact, if banks and insurance companies in Canada were smart (they’re hopelessly myopic!) and realized the bigger picture, they would be forcing the federal government to enhance the CPP for all Canadians and boost our DB plans.

I leave you with a comment Bruce Rogers wrote to the Toronto Star in regards to the interview above:

Thanks for devoting space to Ontario’s plans for a pension to supplement the Canada Pension Plan. Too bad your effort gave the platform to an interviewee who has a financial interest in the inadequate, defined contribution approach to the problem.

Our society clearly needs to take action to ensure that retirees and seniors generally enjoy financial security and a modicum of dignity. To argue against a more generous defined benefit approach is to ignore a serious problem.

Of course, the Harper government has made its decision and Bay Street will agree with that course. Let’s hope the business pages of the Star will balance the debate in future, perhaps by exposing the growing threat to defined benefit pensions where they exist.

This is an informed reader who understands what’s at stake. When it comes to retirement policy, we need to go Dutch on pensions and not take lessons from Down Under or worse, the United States of pension poverty.

Lastly, I wish the media in Canada would start interviewing real pension experts like Jim Leech, Leo de Bever, John Crocker and others who truly understand what is at stake and why we need to boost defined-benefit plans for all Canadians.

 

Photo credit: “Canada blank map” by Lokal_Profil image cut to remove USA by Paul Robinson – Vector map BlankMap-USA-states-Canada-provinces.svg.Modified by Lokal_Profil. Licensed under CC BY-SA 2.5 via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Canada_blank_map.svg#mediaviewer/File:Canada_blank_map.svg

Canada Pension Funding Declined in 2014

Canada map

The collective funding ratio of Canada’s defined-benefit pension plans declined by 2.7 percentage points in 2014, according to Aon Hewitt.

From Benefits Canada:

The median solvency ratio of 449 Aon Hewitt administered pension plans from the public, semi-public and private sectors stood at 90.6% at Dec. 31, 2014.

That represents a decline of 0.5 percentage points over the previous quarter ended Sept. 30, 2014, and a 2.7 percentage-point drop from plan solvency at Dec. 31, 2013.

Since peaking at 96.6% in April 2014, overall plan solvency has declined by 5.9 percentage points, continuing the trend towards worsening plan solvency that began in the third quarter of 2014 (when the solvency ratio dropped to 91.1% from 96.2% in the previous quarter).

About 18.5% of plans were more than fully funded at the end of the year, compared with 23% in the previous quarter and 26% at the end of 2013. Plan sponsors that must file valuations as at Dec. 31, 2014 could see the amount of their deficiency contributions double in 2015 as a result of the lower solvency ratio, says Aon Hewitt.

“Plans that stayed exposed to interest rates really took a beating in 2014,” says William da Silva, senior partner, retirement practice with Aon Hewitt. “Those plan sponsors who have implemented or fine-tuned their risk management strategies performed much better than traditional plans amid interest rate declines.”

Aon Hewitt also said that new mortality tables from the Canadian Institute of Actuaries could lead to a further funding decline in the future.