Video: Comparing the Retirement Income Systems of Australia and the United States

The above talk was given by John Piggott (University of New South Wales) at the 2014 Pension Research Council Conference; Steuerle spoke about his research into Australia’s “atypical” retirement system, how it compares to the United States’ system, and the lessons that can be learned from the comparison.

 

Nevada PERS Pokes Holes in Study Claiming Public Pensioners Make More in Retirement Than They Did On Job

cut up one hundred dollar bill

Officials from the Nevada PERS are disputing a think tank report that claimed public pensioners were making more money in retirement than they did while working.

The report was produced by the Nevada Policy Research Institute.

But Nevada PERS says the findings were based on a small sample size that renders the results meaningless.

From the Las Vegas Review-Journal:

A retirement system official said Thursday a report showing that some public employees who retire collect more in pension benefits than they did while working was based on less than 2 percent of beneficiaries.

The analysis also does not reflect changes to the retirement plan made in 1985 that reduced pension payouts, said Tina Leiss, executive officer of the system.

The conclusions in the report issued by the Nevada Policy Research Institute, a conservative think tank based in Las Vegas, do not account for the vast majority of the members and retirees of the Public Employees’ Retirement System, she said.

“It appears that the analysis was based on a review of 790 retirees whereas there are currently 49,179 retirees (not including survivors and beneficiaries) receiving benefits from the system,” Leiss said. “Over the last 3 fiscal years, approximately 12 percent of those retiring in those years did so with 30 or more years of service while approximately 88 percent did so with less than 30 years of service.”

NPRI officials have used the analysis as evidence of the need for reforms to the public employee retirement system, but Leiss said the analysis is not representative of the benefit structure in place for almost ail current members of the system. Benefits were reduced in 1985 from 90 percent to 75 percent of average compensation for newly hired public employees, she said.

The executive vice president of the NPRI responded:

Victor Joecks, executive vice president at NPRI, said PERS likes to use averages to make its case, which is why the analysis looking at those retiring with 30 years of service is so important. Those with 30 years or more can begin collecting their pensions in their 50s while private-sector workers have to put in much more time to collect Social Security, he said.

Public employees in PERS do not participate in Social Security.

“What it shows is the PERS system has a big inequity in it,” Joecks said. “If you only work for five years or 10 years it’s not a very good system for you.”

Including a 401(k) type of element to the public pension plan would work better for younger workers who don’t plan to make a career in public service because it stays with the employee, Joecks said.

Read more on the think tank report here.

 

Photo by TaxCredits.net

New York Lawmakers “Retire”, Collect Pensions, But Don’t Leave Office

Manhattan

A quirk in New York state law allows certain lawmakers to “retire” without actually leaving office – letting them collect their pensions while still on the job and earning their normal salary.

From the New York Post:

A wacky loophole in state pension law allows legislators who are at least age 65 and elected before 1995 to retire for pension purposes.

In essence, the double dippers — many of whom make $100,000 or more between their base legislative salary of $79,500 and leadership stipends — will be giving themselves pay hikes of 30 percent to 100 percent, depending on years of service.

The legislators re-elected last month who filed for retirement with the state comptroller’s office are a bipartisan bunch.

They include five Republican senators — John DeFrancisco of Syracuse; John Bonacic of Orange County; Kemp Hannon of Nassau County; Kenneth LaValle of Suffolk County; and Tim Libous of Binghamton.

In the Assembly, three Democrats and one Republican filed for the added benefit — Jeff Aubry (D-Queens); Gary Pretlow (D-Mount Vernon); William Magee (D-Madison County); and David McDonough (R-Nassau).

“It’s a loophole that shouldn’t exist. But as long as this is the law, people are going to exploit it,” said Assemblyman Michael Fitzpatrick (R-Suffolk).

Fitpatrick has introduced legislation that would require elected officials and government workers to enter a 401(k)-style pension system.

E.J. McMahon of the Empire Center agreed. “If legislators were in a 401(k)-type system, like the vast majority of their constituents, this simply wouldn’t be an issue. The existing system shouldn’t simply be mended, it should be ended.”

The lawmakers defended their actions. They told the NY Post:

“I had a heart attack 10 years ago,” said Aubry, 67, first elected in 1992. “Everyone has to look at their own situation. I don’t know if this makes a huge difference to people in my district.”

Aubry, who makes about $100,000, expects a monthly pension of about $2,400 or close to $30,000 extra a year.

Bonacic, 72, told The Post his wife would collect lower benefits if he dies in office without being retired.

“If I were to die while in active service in the state Legislature, the law does not allow my wife to collect my pension. I put this decision off for as long as I can, but I thought it was appropriate at this time to protect my wife,” he said.

Pretlow, 65, said he was thinking of his own mortality.

“I’ve been to six funerals in the past two weeks, 28 to 55 years old. No one was older than me. Life is short,” he said.

In total, nine state lawmakers will be “retiring” this year without leaving their job.

 

Photo by Tim (Timothy) Pearce via Flickr CC License

Illinois Pension Board Director to Retire; Search for New Director Begins Soon

Board room chair

William Mabe, executive director of the State University Retirement System of Illinois, has announced that he will retire on March 31.

The System plans to hire a firm to search for and secure a new director by the time Mabe leaves his post.

From the Chicago Sun-Times:

William Mabe, executive director of the State University Retirement System, will retire on March 31, and five of the 11 board members’ terms will expire next summer.

[…]

The board expects to hire a search firm at an Oct. 30 meeting to find a new executive director, and intends to choose the new leader by the time Mabe retires, a spokesman said.

Mabe, 67, said in an interview Thursday that he could have stayed on for another three years, but chose to retire now to do other things with his life.

“I’ve been here for five years and I’ve stayed as long as I had planned to stay,” Mabe said. “The pension issue had nothing to do with it. It’s still lingering in the courts, and (the SURS leadership) did the heavy lifting we had to do. … I wanted to retire when that was completed and things were quiet.”

There may be further turnover on the board, as the terms of five more trustees expire in June 2015.

NYU President Speaks About $800,000 Pension

Manhattan, New York

New York University President John Sexton has been a polarizing figure the last few years, not only for the large exit bonuses he approved for outgoing staff but also for his own $800,000 pension.

He addressed his pension at a dinner and question-and-answer session last week with NYU students. On his pension, from NYU Local:

“After taxes, that’ll provide 400,000 dollars a year, which is a good income. I have about fifteen to twenty people that are depending upon me. And my one indulgence—you’ll notice if you look carefully that I don’t own a suit, and I wear TravelSmith or expandable waist pants—the one thing I do is try to travel to places and to try to extend that to not only my family but to others, and I’d like to have the latitude to do that. That doesn’t mean I will do it. It doesn’t prevent me from donating some of that salary.”

“It’s because I don’t have a savings account that I do need that money.”

“I’ve never asked for a particular salary.”

And on his retirement plans:

“Gordon [Brown] is the UN High Commissioner for Education. He’s spending his life, and he wants me to spend my life other than my teaching, trying to get education to the abjectly poor: slums of India, Haiti, sub-Saharan Africa. I think that’s probably what I’m gonna do.”

“I do these periodic reflections. I’ve done about eight or ten of them. They’re on my website. The one I’ve been working on [recently] is how you could create a system in the United States that found the most talented students, matched them with the right school, and made it possible for them to go there.”

The rest of the questions didn’t have anything to do with pensions or retirement, but his answers are worth reading nonetheless. Check out the story here.

Pension Tax Could Loom Large in Race for Michigan Governorship

Detroit, Michigan

Pensions aren’t the biggest issue in Michigan’s race for governor. But with incumbent Rick Snyder in a dead heat with challenger Mark Schauer, Snyder’s 2011 pension tax increase could prove to be a major factor in the way the race eventually plays out.

From Money News:

Polls have shown Snyder, 56, in a dead heat with Democratic challenger Mark Schauer, 52, a former state legislator and congressman who’s hammering Snyder for hurting pensioners while cutting business taxes by $1.4 billion.

“I’m very sorry I voted for Mr. Snyder,” said Rosalind Weber, 67, a retired state worker from Ionia who calls herself an independent. “I won’t vote for him again. I didn’t like what he did with the taxes.”

Snyder bucked a decades-old trend among states of reducing taxes on retirees. While other issues are stirring the race, Michigan’s 7.7 percent July unemployment rate remained above a 6.2 percent U.S. average, the pension tax is driving a Democratic drumbeat for change in Lansing, where Republicans control all three branches of government.

Until Snyder’s changes took effect, Michigan had exempted most pension payments from the income tax, now at 4.25 percent. He created a three-tier system for retirees born before 1946, after 1952 and those in between. Members of the youngest group were hit hardest; instead of being allowed to exempt $47,309 in retirement income, they’re now taxed fully until age 67. Then, they get a $20,000 exemption.

Michigan’s House Fiscal Agency estimates that the tax cost retirees around $350 million in 2013 alone. And, as everyone knows, seniors vote. We’ll see how the race plays out, but the pension tax increase is sure to be an issue moving forward.

The Accounting Implications of Job-Hopping and the Shift to 401(k)s

401k savings jar

Two trends have been building in recent years, and now they are set to collide: on one hand, employers are increasingly shifting workers into defined-contribution plans. On the other, workers are becoming more likely to move between companies numerous times over the course of their working lives. Those trends together are bound to butt heads. Canover Watson writes:

As with many other major Western economies, the US in recent decades has seen its pensions landscape shift away from “defined benefit” (DB) to “defined contribution” (DC) plans […] The move from the former to the latter is unmistakable. […] DB plans tend to favour long-tenured employees, are not transferred so easily between employers, and so are less suited to a highly mobile workforce.

The effective result of this transition is that individual savings accounts, originally intended to supplement DB plans, have ended up supplanting them. This has rendered the question of optimizing returns from investments a cornerstone of the pension debate, as these returns now directly dictate the employees’ eventual retirement income.

Present and future retirees’ exclusive dependence on 401(k)s has upped the ante for all stakeholders–these funds need to achieve consistent returns required to provide liveable, income during retirement. But different funds and managers operate in different ways, and those differences are amplified when a worker switched employers numerous times. From Canover Watson:

What is required is the consistent application of a single accounting approach to underpin accurate portfolio valuations. The answer to achieving this, as with many things in our modern world, lies partly with technology and automation-namely the adoption of a master accounting system at the level of the pension fund.

The shift to DC plans and the multimanager model, both represent a step forward: the creation of a more sustainable, efficient system for ensuring that citizens are able to generate sufficient income for their retirement years. Yet, unless these changes are met with a more sophisticated, automated approach to accounting, pension returns ultimately will be short-changed by the march of progress.

To read the rest of this journal article, click here.

The article was published in the Journal of Pension Planning and Compliance.

Photo by TaxCredits.net

As Workers Grow Older, Their Retirement Contributions Get Bigger

Retirement Saving street signs

As one grows older, one also grows wiser. Perhaps that explains the findings of a recent survey, which found that workers contribute more to their retirement accounts–both in terms of dollar amount and percentage of salary–as they get older. From Pension Benefits:

Our study revealed that 60.2% of employees were saving for retirement at an average salary deferral rate of 6.7%.
As employees aged and drew closer to retirement age, a higher proportion of them elected to make contributions to their retirement plan, with participation increasing from 48.4% for employees aged 20 to 29 years to 64-4% for employees aged 61 to 69 years (Exhibit 1). Salary deferral rates similarly increased with age, with employees aged 20 to 29 years deferring on average 4-9% of salary and employees aged 61 to 69 years deferring on average 9.2% of salary. The pattern of older workers saving more than younger workers was true for both genders.

Predictably, a worker’s income bracket plays a large role in how much he/she decides to save. From Pension Benefits:

Overall, more of those in higher compensation groups were saving, and they saved at higher rates. Among those earning $20,000 to $29,999, 36.8% of employees were saving, and they saved on average 4-7%. Among those earning $110,000 to $199,999, those percentages rose to 81.8% and 7.9%, respectively.
When considering compensation groups individually, the research showed that more females were saving for retirement than males and they saved at a higher rate than males in most compensation categories.

The full survey results can be found here (registration required).

 

Photo by http://401kcalculator.org

Does Knowledge Of Pension Reforms Affect Retirement Decisions?

balance retirement decision

If you knew your pension fund was in great shape, would it alter when you chose to retire? Conversely, if you knew your fund was in dire straits, would it increase the probably of working part-time during retirement?

Two Norwegian researchers set out to answer those questions. As published in the Journal of Pension Economics and Finance:

We present the results of a survey experiment where the treatment group was provided with an information brochure regarding recently implemented changes in the Norwegian pension system, whereas a control group was not. We find that those who received the information are more likely to respond correctly to questions regarding the new pension system. The information effect is larger for those with high education, but only for the most complex aspect of the reform. Despite greater knowledge of the reform in the treatment group, we find no differences between the treatment and control group in their preferences regarding when to retire or whether to combine work and pension uptake.

Read the entire paper here.

 

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Missouri Law Bans Pension Advances, Helps Retirees Recoup Losses

Money bird's nest

Pension360 covered last week the rising business of pension advances—businesses that apply the concept of a payday advance to retirement benefits by giving retirees an option to receive their pension as a lump sum.

But Missouri recently passed a bill that outlaws the practice and gives retirees a chance to take legal action against the business that gave them their pension advance.

Today, the State Treasurer announced that the law goes into effect immediately. Reported by KFVS:

Missouri State Treasurer Clint Zweifel announced House Bill 1217 goes into effect on Thursday – meaning public retirees in Missouri are now protected from the predatory lending practice known as pension advances.

Zweifel says retired public employees who are drawn into these misleading agreements can now take legal action against the businesses offering them.

“Pension advances prey on the financially vulnerable, offering an up-front lump sum in exchange for part or all of a public pension, and they are generally accompanied by exorbitant fees and interest rates,” Treasurer Zweifel said.

“Pension advances are essentially payday loans on steroids in that the individuals taking them are borrowing against a pension instead of a paycheck. They put the individual’s retirement in jeopardy and cost them more money in the long run. Today marks a big win for consumer protection in Missouri, and I am proud of the bipartisan coalition of lawmakers who helped me make our state the first in the nation to ban this practice.”

Missouri is so far the only state to pass a law addressing pension advances.

Photo by RambergMediaImages via Flickr CC License