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Author: Natalya Shnitser Publisher: ISBN: Category : Languages : en Pages : 53
Book Description
Using newly collected data on over 100 state-administered pension plans, this Article shows that previously overlooked differences in institutional design are associated with the striking variation in funding discipline across U.S. public pension plans. As state and local governments grapple with unfunded pension obligations, this Article presents a timely examination of public plan governance across two key dimensions: the allocation of control over funding decisions and the transparency with respect to funding liabilities. It shows empirically that greater constraints on legislative control over funding decisions -- typically through the delegation of control to pension-system boards -- have been associated with better funding discipline. Conversely, liability-pooling arrangements that have shrouded individual employer responsibility for underfunding have been associated with worse funding discipline. These findings should inform current reform efforts to address the multi-trillion dollar shortfall in pension funding. To date, such state and local government efforts have focused primarily on scaling back benefits for public employees but have overlooked the role of institutions in explaining why some public employers have consistently contributed to the pension funds while others have failed to set adequate contribution rates or have withheld promised funds.
Author: Natalya Shnitser Publisher: ISBN: Category : Languages : en Pages : 53
Book Description
Using newly collected data on over 100 state-administered pension plans, this Article shows that previously overlooked differences in institutional design are associated with the striking variation in funding discipline across U.S. public pension plans. As state and local governments grapple with unfunded pension obligations, this Article presents a timely examination of public plan governance across two key dimensions: the allocation of control over funding decisions and the transparency with respect to funding liabilities. It shows empirically that greater constraints on legislative control over funding decisions -- typically through the delegation of control to pension-system boards -- have been associated with better funding discipline. Conversely, liability-pooling arrangements that have shrouded individual employer responsibility for underfunding have been associated with worse funding discipline. These findings should inform current reform efforts to address the multi-trillion dollar shortfall in pension funding. To date, such state and local government efforts have focused primarily on scaling back benefits for public employees but have overlooked the role of institutions in explaining why some public employers have consistently contributed to the pension funds while others have failed to set adequate contribution rates or have withheld promised funds.
Author: Alicia Haydock Munnell Publisher: ISBN: Category : Global Financial Crisis, 2008-2009 Languages : en Pages : 35
Book Description
Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market.
Author: Ingo Walter Publisher: ISBN: 9781077442368 Category : Languages : en Pages : 150
Book Description
America faces two public finance challenges that - if left unaddressed - will have serious implications for the fiscal stability of state and local governments and for the quality of life of all Americans. The funded status of public pension plans and the state of the country's critical infrastructure are generally viewed as distinct subjects. This book argues otherwise. Over the long term, when one of them deteriorates, the other is sure to follow. Moreover, infrastructure investments are well suited to the portfolio needs of public pension plans, which themselves comprise the single largest pool of capital potentially available for the financing needs of American infrastructure and today are under-allocated to this asset type. This book begins with an analysis of the $4.3 trillion U.S. public pension system, drawing on a primary dataset comprising thousands of observations drawn from a decade of annual reports of the 25 largest American public pension systems - which together comprise about 55% of all public pension assets in the country. It then links sustainable pension finance to investments in real assets, specifically infrastructure projects. "Bridging the Gaps" is intended to provide greater transparency to the complex public finance challenges that mark these issues. Those with an interest in the public pension system will learn much from the discussion of these complex organizations - so critical to sustainability of retirement benefits. Asset managers and other advisors, who sell to these investors, will benefit from an empathic approach to understanding the needs of their most important clients. The book concludes with a range of ideas that can be explored by responsible public officials and policymakers as well as infrastructure agencies and their advisors. The ultimate objective is to help in the search for solutions to the persistent gaps facing America's public pension system and at the same time unlocking capital to reduce America's persistent infrastructure problems - creating winners on both ends of the financial chain.
Author: Alicia Haydock Munnell Publisher: ISBN: Category : Languages : en Pages :
Book Description
"The NBER Bulletin on Aging and Health provides summaries of publications like this. You can sign up to receive the NBER Bulletin on Aging and Health by email. Public pension funding has recently become a front-burner policy issue in the wake of the financial crisis and given the pending retirement of large numbers of baby boomers. This paper examines the current funding of state and local pensions using a sample of 126 plans, estimating an aggregate funded ratio in 2009 of 78 percent. Projections for 2010-2013 suggest that some continued deterioration is likely. Funded status can vary significantly among plans, so the paper explores the influence of four types of factors: funding discipline, plan governance, plan characteristics, and the fiscal situation of the state. Judging the adequacy of funding requires more than just a snapshot of assets and liabilities, so the paper examines how well plans are meeting their Annual Required Contribution and what factors influence whether they make them. The paper also addresses the controversy over what discount rate to use for valuing liabilities, concluding that using a riskless rate of return could help improve funding discipline but would need to be implemented in a manageable way. Finally, the paper assesses whether plans face a near-term liquidity crisis and finds that most have assets on hand to cover benefits over the next 15-20 years. The bottom line is that, like private investors, public plans have been hit hard by the financial crisis and their full recovery is dependent on the rebound of the economy and the stock market"--National Bureau of Economic Research web site.
Author: Von M. Hughes Publisher: McGraw Hill Professional ISBN: 1260134776 Category : Business & Economics Languages : en Pages : 320
Book Description
The first comprehensive guide to mastering the roles and responsibilities of a public pension fiduciary in the U.S. In an ever-changing financial and political landscape, your job as a public pension fiduciary continues to get more difficult. Now, you have the help you need. U.S. Public Pension Handbook is the only one-stop resource that covers the various areas of public pension governance, investment management, infrastructure, accounting, and law. This comprehensive guide presents critical data, information, and insights in topic-specific, easy-to-understand ways—providing the knowledge you need to elevate your expertise and overall contribution to your pension plan or system. U.S. Public Pension Handbook covers: •Today’s domestic and global public pension marketplace•The ins and outs of the defined benefit model, the defined contribution, and hybrid pension designs•Financial concepts central to the actuarial valuation of pension benefits•Public pension investment policies and philosophies•Asset allocations and how they have changed over time•State and local government pension contribution policies•The impact of governance structure and board composition on organizational results•Fiduciary responsibility and the general legal/regulatory framework governing trustees•How changes in trust law may affect public pension trustee fiduciary responsibility and liability•Best practices in pension governance and organizational design Public pension trustees are the unsung heroes of the world of finance, collectively managing over $6 trillion in retirement assets in this country alone. U.S. Public Pension Handbook provides the grounding you need to make sure you perform your all-important with the utmost expertise and professionalism.
Author: Alicia H. Munnell Publisher: Rowman & Littlefield ISBN: 0815724136 Category : Business & Economics Languages : en Pages : 266
Book Description
In the wake of the financial crisis and Great Recession, the health of state and local pension plans has emerged as a front burner policy issue. Elected officials, academic experts, and the media alike have pointed to funding shortfalls with alarm, expressing concern that pension promises are unsustainable or will squeeze out other pressing government priorities. A few local governments have even filed for bankruptcy, with pensions cited as a major cause. Alicia H. Munnell draws on both her practical experience and her research to provide a broad perspective on the challenge of state and local pensions. She shows that the story is big and complicated and cannot be viewed through a narrow prism such as accounting methods or the role of unions. By examining the diversity of the public plan universe, Munnell debunks the notion that all plans are in trouble. In fact, she finds that while a few plans are basket cases, many are functioning reasonably well. Munnell's analysis concludes that the plans in serious trouble need a major overhaul. But even the relatively healthy plans face three challenges ahead: an excessive concentration of plan assets in equities; the risk that steep benefit cuts for new hires will harm workforce quality; and the constraints plans face in adjusting future benefits for current employees. Here, Munnell proposes solutions that preserve the main strengths of state and local pensions while promoting needed reforms.
Author: David M. Knapp Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Many state and local pension systems are facing funding crises. The average U.S. public pension plan cannot cover a quarter of its obligations to provide pension benefits to current, retired, and former employees, and 17 systems are unable to cover more than half of their obligations. Using a comprehensive approach based on a synthesis of multidisciplinary research and discussions with stakeholders, the authors examine the recent history of pension finance, possible consequences for sponsoring government finances and services, reforms to pension financing and benefits aimed at shoring up system's funding, and characteristics of local institutions and politics that limit reforms. An overarching finding is that there is not a single national pension crisis. There are many small crises that reflect local circumstance, history, and constraints, including legacy pension costs. The authors identify a set of key insights for informing a tailored road map for reform that meets the objectives of its stakeholders.
Author: Samuel Pienknagura Publisher: International Monetary Fund ISBN: 151359611X Category : Business & Economics Languages : en Pages : 52
Book Description
Chile’s pension system came under close scrutiny in recent years. This paper takes stock of the adequacy of the system and highlights its challenges. Chile’s defined contribution system was quite influential when introduced, and was taken as an example by other countries. However, it is now delivering low replacement rates relative to OECD peers, as its parameters did not adapt over time to changing demographics and global returns, while informality persists in the labor market. In the absence of reforms, the system’s inability to deliver adequate outcomes for a large share of participants will continue to magnify, as demographic trends and low global interest rates will continue to reduce replacement rates. In addition, recent legislation allowing for pension savings withdrawals to counter the effects from the COVID-19 pandemic, is projected to further reduce replacement rates and increase fiscal costs. A substantial improvement in replacement rates is feasible, via a reform that raises contribution rates and the retirement age, coupled with policies that increases workers’ contribution density.
Author: Herbert A. Whitehouse Publisher: ISBN: Category : Languages : en Pages : 0
Book Description
Fundamental fiduciary investment practice standards require the development of an investment policy in order to further a plan's funding policy objectives. Until now, local government pension plans used almost the opposite approach. Under this old paradigm, local government plans used “long-term” investment policies regardless of the plan's financial and cash flow needs; and then used the “expected return” from that policy as the dominant element of a faux funding policy; namely, the actuarial valuation. On October 1, 2000, the City of Fort Myers had fully funded the accrued liabilities of its general employee pension plan. By October of 2010, plan assets were insufficient to cover any liabilities for either the accrued benefits of its covered active employees, or for the contributions that employees themselves had made to the plan. Moreover, only 83.2% of obligations for existing retirees were covered by assets, even at the high 7.75% discount rate used to value liabilities. This decline to 0% coverage also occurred in the large general employee pension plans of nine other Florida cities. The thesis here is that, at least in Florida, where a local government is required to make its ARC (actuarially required contribution) that this kind of decline is a result of funding policy discipline failures. The paper reviews the performance of a range of standard asset allocation portfolios to confirm that the market over this period was generally consistent with 7% expected returns, if not the above average actuarial expected return assumptions returns used by each of these 10 general employee pension plans. A changing public pension paradigm, best illustrated by the Robert Novy-Marx burning money hypothetical, is at the core of this discipline failure. This hypothetical showed how a public pension plan could improve its apparent funded status by actually burning bonds in order to get rid of stable, but relatively low expected return investments. The objective of the burning was so that the remaining assets would be invested - for the long-term - in high volatility / high expected return equity assets. Under the old “long-term” only paradigm, the actuary would then discount liabilities by this higher equity expected return rate rather than a blended portfolio rate, showing an actuarially better funded plan. GASB (Government Accounting Standards Board) principles for liability accounting and disclosure have changed such that a “long-term” liability discount rate can, for future disclosures, only be used to the extent that an investment policy with that expected return will be used on real assets. This paper helps to show how many of the conclusions of recent LeRoy Collins Institute research on Florida's underfunded municipal pension plans relate to a plan's funding ratio objective. One of the most significant of these conclusions is that the cash flow out of many local government plans are now very significant; and can be much larger than the monies being contributed for the plan's unfunded accrued liability. The GASB change is very significant, not just because of its new standards, but also because these standards reinforce fundamental fiduciary practice standards. These practice standards require that investment policies further a plan's funding policy objectives rather than the other way around. The GASB change will also help to remove the moral hazard in public sector pension governance that had restricted both investment consultants and actuaries from helping plans achieve a plan's funding ratio objectives. Local government pension trustees should be setting and managing to plan funding ratio objectives; and they now should have additional valuable resources for helping them in this role; namely, the actuary and the investment consultant.
Author: Natalya Shnitser
Author: Natalya Shnitser
Author: Alicia Haydock Munnell
Author: 
Author: Ingo Walter
Author: Alicia Haydock Munnell
Author: Von M. Hughes
Author: Alicia H. Munnell
Author: David M. Knapp
Author: Samuel Pienknagura
Author: Herbert A. Whitehouse