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Pension Facts and Figures

Pension Facts and Figures. SEIU Public Pension Conference Washington DC February 24-25, 2011. What is All the Fuss About?. The average public employee pension benefit is reasonable: $22,600 Most members contribute 5% to 10% of pay to their pension The normal cost for most employers is

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Pension Facts and Figures

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  1. Pension Facts and Figures SEIU Public Pension Conference Washington DC February 24-25, 2011

  2. What is All the Fuss About? The average public employee pension benefit is reasonable: $22,600 Most members contribute 5% to 10% of pay to their pension The normal cost for most employers is between 5% and 10% of pay

  3. The Life of a Pension Actuarial Assumptions Economic Assumptions Investment returns Salary changes Inflation Demographic Assumptions New hires Retirements Disability Mortality Investment Returns (gains and losses smoothed) Employee Contribution Employer Contribution Pension Fund Benefit Design $50,000 FAS x 30 yos x 2% = $30,000 pension Benefit Changes Multiple tiers Prospective Retroactive Benefit Payments Base amount at retirement + COLA ARC Normal cost Unfunded liability Amortized Admin costs

  4. Year 1 Year 2 Year 3 Year 4 Funded Ratio Year 5 Year 6 June 30th

  5. Funded Ratio: What is it? Total liabilities Total pension payment commitments Factors: • Pension benefit ? (FAS x yrs x multiplier) • COLA (inflation) • Number of retirees • Number of actives • Projected new hires • Projected mortality • Projected wage increases Total assets Factors: • + today’s assets • + contributions • + investment returns

  6. Funded Ratio Discount Rate $ Billions Unfunded Liabilities Investment return rate 70% Funded Ratio 100% Assets Liabilities

  7. Unfunded Liabilities:What Are The Main Causes • Underpayment of actuarial required contribution • Underperformance on assumed investment return • Benefit improvement • Higher inflation than assumed • Higher early retirement than assumed

  8. Stock Index

  9. Benefit Improvements Stock Index

  10. Benefit Improvements Employer Contributions 100% Stock Index 0%

  11. Funded Ratio Benefit Improvements 100% Employer Contributions 70% Stock Index

  12. Funded Ratio Benefit Improvements Employer Contributions Stock Index

  13. Funded ratios of our key plans: Nevada 73% New Hampshire 58% New York State 101% North Carolina 90% Ohio State 72% Oregon 86% Pennsylvania State 84% Rhode Island 58% Washington PERS 1 70% Wisconsin 99% California 83% Connecticut 43% Colorado 67% Illinois State 44% Illinois SURS 54% LACERA 89% Maine 67% Maryland 65% Massachusetts 72% Michigan 78% Minnesota 86%

  14. Economic assessment of Public Plans Top Tier • New York State 101% • Wisconsin 99% • North Carolina 90% • LACERA 89% • Oregon 86% • Minnesota 86% • Pennsylvania State 84% • California 83% Mid Tier • Michigan 78% • Nevada 73% • Massachusetts 72% • Ohio State 72% • Washington PERS 1 70% • Colorado 67% • Maine 67% • Bottom Tier • Maryland 65% • New Hampshire 58% • Rhode Island 58% • Illinois SURS 54% • Illinois State 44% • Connecticut 43%

  15. Economic assessment of Public Plans Green Zone • New York State 101% • Wisconsin 99% • North Carolina 90% • LACERA 89% • Oregon 86% • Minnesota 86% • Pennsylvania State 84% • California 83% Yellow Zone • Michigan 78% • Nevada 73% • Massachusetts 72% • Ohio State 72% • Washington PERS 1 70% • Colorado 67% • Maine 67% • Red Zone • Maryland 65% • New Hampshire 58% • Rhode Island 58% • Illinois SURS 54% • Illinois State 44% • Connecticut 43%

  16. Effect of Higher DiscountRate Assumption 6 Total Liability = $5.0 trillion 5 Unfunded 4 $2.30 Total Liability = $3.4 trillion Trillions $0.70 3 2 $2.70 $2.70 Assets 1 0 8% Discount Rate 4% Discount Rate Source: Center for Retirement Research, SEIU

  17. State and Local Pension Contributions Including Projections Percent of Budget 5% Discount Rate 8% Discount Rate Source: Center for Retirement Research

  18. Median Public PensionAnnual Investment Returns:

  19. Fitch Credit Rating Agency Assumptions: • 7% interest rate • Funded ratio of 70% or more: Adequate • Funded ratio of less than 60%: Weak

  20. Fitch Rating of SEIU Public Pension Funds Adequate • California • LACERA • Michigan • Minnesota • New York • North Carolina • Oregon • Pennsylvania • Wisconsin • In Between • Maine • Massachusetts • Nevada • Ohio • Washington • Weak • Connecticut • Colorado • Illinois State • Illinois SURS • Maryland • New Hampshire • Rhode Island

  21. Headline Risk Every person in every town in America will know the reason their library is closing early is that public employees have defined benefit pensions. —Grover Norquist

  22. Headline Risk 50% of private sector doesn’t have any pension other than Social Security

  23. Legal Framework • Explicit constitutional protection • Legislative/statutory protection • Contract law protection

  24. Questions • Given these factors that have impacted funding, what has happened to your plan? 2. What measures would address the problems in your plan? 3. What questions do you have?

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