private-sector workers

Video: Challenges Facing Public Pensions

The 2014 CSG National Conference was held last month, but videos of the presentations have just begun to surface in the past few weeks.

This presentation touches on the history of public pension plans in the United States, the challenges those plans face today, and the retirement “insecurity” faced by private sector workers.

The talk, titled “Public Pensions”, was given by Hank Kim, executive director and counsel for the National Conference on Public Employee Retirement Systems. His bio:

Hank Kim is executive director and counsel for the National Conference on Public Employee Retirement Systems, the largest public pension trade association in the United States. His responsibilities include strategic planning for NCPERS, promoting retirement security for all workers through access to defined benefit pension plans, and the expansion of NCPERS’ role in the continuing debate on health care.

Defined-Benefit Plans Continue To Dwindle Among US Firms

States and municipalities are steadily shifting away from defined-benefit plans and moving workers into 401(k)-style or hybrid plans. But the trend isn’t exclusive to the public sector; as a recent survey reveals, the shift is just as pronounced among the country’s largest private sector firms. Reported by Business Insurance:

Just 118, or about 24%, of Fortune 500 companies offered a defined benefit plan to new salaried employees in 2013, down from 123 in 2012 and a steep decline compared with the 277, or 55%, that offered the plans in 2003, according to a Towers Watson & Co. survey released Thursday.

Frequently cited reasons for the decline in employer sponsorship of defined benefit plans include longer employee lifespans, which increases benefit costs; decreased corporate tolerance of fluctuating contribution requirements, which can jump up and down due to investment results; and escalating Pension Benefit Guaranty Corp. insurance rates.

The switch from defined-benefit to defined-contribution shifts more risk onto workers. But 401(k)s carry risk for employers, too, according to Towers Watson.

Such a move “carries risks for employers, such as having workers delay retirement when market performance is poor, which in turn can result in higher benefit costs and less mobility within their organizations,” said Alan Glickstein, a senior retirement consultant at Towers Watson in Dallas, in a statement regarding the survey.

Photo by 401kcalculator.org

17 States Considering State-Run Retirement Plans Aimed at Private Sector Workers

Many private-sector workers don’t have access to retirement plans through their employers, and states across the country are now trying to solve that issue. The trend has flown under the radar, but well over a dozen states are in the process of setting up (or brainstorming) a state-run retirement plan that caters to private-sector employees.

From Benefits Pro:

According to the Pension Rights Center’s website, 17 states are at some stage of legislating state-administered plans that hope to deliver retirement plan access to the country’s smallest employers.

Among them, Maryland, Connecticut and Illinois have either set up a commission to study creation of statewide retirement programs or taken early steps to create such programs.

Nebraska has held hearings examining the state of its private-sector employees’ retirement readiness. Indiana is moving forward, too, as are Arizona, Colorado, Minnesota, Ohio, Oregon and Vermont.

More specifics on a few of the initiatives from Benefits Pro:

In Connecticut, a panel is evaluating whether state-run automatic individual retirement accounts or other retirement programs could help increase savings. The panel is expected to issue an interim report by May.

In Illinois, legislation has been introduced that would require employers who have 25 or more employees but don’t offer a retirement plan to automatically enroll workers in a Roth IRA with a 3 percent payroll deduction.

In Maryland, a retirement program task force was established after a lawmaker wrote a bill requiring employers with at least five employees who don’t offer a retirement plan to establish an automatic 3 percent payroll deduction into a retirement plan.

California, as usual, was among the first states to have begin implementing the idea of a state-sponsored retirement plan for private sector workers. In 2012, Jerry Brown passed the Secure Choice Retirement Savings Trust Act, which eventually will require all business with over five employees to enroll their employees in the state plan.

States Move To Give Private-Sector Workers Access to State-Run Retirement Plans…But Not Everyone Thinks It’s A Good Idea

There are millions of private-sector workers in the United States without retirement plans, but the past year has been an active one for state and federal lawmakers trying to make sure these workers can gain access to a state-run plan if they want one—nearly a third of states in the US are drafting legislation for such systems.

But Dale E. Brown, president and chief executive of the Financial Services Institute Inc, published a piece this week in Investment News advocating against such state-run systems. One reason, he says, is the skewing of small business incentives:

State-run retirement plans for private sector workers would immediately undermine the incentives for small businesses that do not currently offer employer-sponsored plans to establish their own plans in the future…

As more employers came to “offload” their retirement plan offerings to the respective states (or simply neglect to develop them in the first place), many experienced financial advisers in each area — who have been ethically advising plan sponsors for years — would simply be forced to leave the market. The result would be a reduction in access to professional financial advice, rather than the expansion of access that American workers so badly need.

Brown also spends time decrying the cost associated with the systems:

These proposals would also create substantial new costs for states and taxpayers, and would open states to potential liability to the IRS and to the Department of Labor under ERISA. While many of the bills’ sponsors envision these plans as low-cost solutions, the true expenses of running a large and robust retirement plan — including ensuring that the plans are properly managed; that investment options are appropriate and are adjusted as necessary; and that plan activities are closely monitored to prevent prohibited transactions, among many others — could easily and quickly derail these expectations.

In addition to the ongoing expenses mentioned above, taxpayers would be on the hook for substantial costs just to get the plans off the ground. When start-up outlays for plan research and design, legal and tax expenses associated with obtaining IRS approval, and many other expenses are factored in, it becomes clear that these states would be incurring significant costs to provide a service that is already broadly available in the private market.

But federal lawmakers say there are too many workers without access to retirement plans. One lawmaker told Pensions & Investments:

“With 75 million Americans without a retirement plan, there is no question that our country has a retirement security crisis,” said Sen. Tom Harkin, D-Iowa, in an e-mail. “I am encouraged to see states taking steps to improve retirement outcomes for Americans.” Mr. Harkin has proposed privately run retirement funds on the national level.

Sixteen states are considering legislation that would set up state-run retirement plans for private-sector workers.