12/22/15: A Holiday Message from Meredith Williams, NCTR Executive Director


The holidays have always been a time to give thanks, and I hope that 2015 has been a year with much to be thankful for, both personally and professionally, for all of you.

For NCTR and the larger public pension community, it has also been a year for which there has been much to be grateful.  While the attacks on public employees and their pensions have certainly continued, and there have been difficult challenges for some of our member systems, their boards, and their participants, there have also been a number of successes at the national level for our community.

Therefore, as the year slowly draws to a close, I thought it might be appropriate to remember some of these accomplishments, even as we prepare ourselves for what will surely be another year of unwarranted criticism and attacks leveled at the public sector retirement security model in 2016.

Consider, for example, these significant victories (with links to the “NCTR FYI” item that discusses them):

  • In perhaps the year’s most important “win”—at least for now—a strong and concerted effort by the public pension community successfully kept onerous public pension provisions from being included as part of year-end omnibus spending and tax extender legislation that just passed the Congress last week. These provisions (from the Public Employee Pension Transparency Act, a/k/a PEPTA, and the annuity accumulation retirement plans for employees of State and local governments, a/k/a the Hatch SAFE Act annuities proposal) were recently linked by Senator Orrin Hatch (R-UT) to legislation pertaining to Puerto Rico assistance and pushed for inclusion in these “must-do” bills.  (12/15/15: Public Pensions in the Crosshairs: PEPTA, Hatch Annuities Proposal Included in GOP Puerto Rico Assistance Bill)
  • The so-called “Omnibus” spending bill that funds the government through September of 2016 did, however, include a two-year delay in the implementation of the “Cadillac tax” on high-value health insurance plans, otherwise set to take effect in 2018 under the provisions of the Affordable Care Act. The Public Sector Healthcare Roundtable, representing government purchasers of healthcare including a number of public pension plans, has been working to see this excise tax delayed, reformed, or repealed.  (12/8/15:  Senate Votes Overwhelmingly to Repeal “Cadillac” Excise Tax on Healthcare Plans)  Congratulations to them!
  • The Senate Finance Committee’s Tax Reform Working Group dealing with retirement issues did not include any public pension provisions in the recommendations that it submitted to the full Finance Committee in July. These Tax Working Groups were created to analyze current tax law and examine policy trade-offs and available reform options within their designated topic areas, and their recommendations are to be used as a foundation for the development of bipartisan tax reform legislation.  Keeping public pension provisions out was a major accomplishment.  (7/14/15:  Senate Finance Committee Working Group Report on Savings and Investments Silent on Public Pensions, but Danger Still Abounds)
  • The 52 percent hike in the Medicare Part B standard premium, set to affect millions of public employees not covered by Social Security in 2016, was held instead to 18 percent. This is the increase that would have applied to all Medicare Part B enrollees in 2016, save for the fact that a “hold-harmless” provision protects the vast majority of them from any increase in years in which a Social Security COLA is not granted.  Not as good as no increase, but not as bad as it could have been!  (11/3/15:  Medicare Part B Premium Increase Update)
  • An effort to have the National Conference of State Legislatures (NCSL) approve a resolution that would (1) mischaracterize the current state of public pensions, and (2) seek an unnecessary and uncalled-for Federal bailout was averted when the resolution’s sponsor, New Jersey State Senate President Stephen Sweeney (D), withdrew it from consideration. The resolution would have mischaracterized pension underfunding in the states as “a national crisis that threatens to slow economic growth, force massive tax increases and crowd out spending on other state priorities such as education, transportation and health care.”  To have had this language adopted by NCSL would have had very serious implications going forward.  Thanks to all of you who weighed in with your state legislators involved in this process.  (12/15/15:  NCSL Federal Public Pension Bailout Resolution Fails to Advance)
  • The Governmental Accounting Standards Board (GASB), in response to public pension community requests, quickly moved to change the definition of “covered-employee payroll” contained in GASB Statements No. 67 and 68. As originally approved, these statements defined this term as the payroll of employees who are provided with pensions through the pension plan, meaning gross payroll rather than pensionable payroll.  The proposed change will revert back to the definition of measures of covered payroll as provided in Statements 25 and 27.  Thank you, GASB staff, and your new Board chairman, David Vaudt.  (10/20/15:  GASB to Consider Reverting to Previous Definition of Covered Payroll as “Pensionable” Compensation)
  • In response to formal criticisms regarding its previous efforts, the Pew Charitable Trusts has determined to incorporate a number of changes, “all of which are based on previous feedback from the states as well as the National Council on Teacher Retirement,” in its upcoming 2014 data verification requests. Pew will use these requests to confirm its latest data, for fiscal year 2014, which it plans to use in an upcoming 50-state report based on 2013 and 2014 data, expected in 2016.  (11/3/15:  Pew Changes Approach in Seeking NCTR Members’ Help with Data)
  • NCTR and the National Conference on Public Employee Retirement Systems (NCPERS) filed a brief as amicus curiae in the case of Friedrichs v. California Teachers Association, to be argued soon before the United States Supreme Court. The brief did not express an opinion regarding the underlying merits of the case, which deal with “agency shop” agreements, so-called “fair-share” fees, and “non-chargeable speech.”  Rather, it was intended to set the record straight regarding political claims made by other amicus briefs that collective bargaining is responsible for pension underfunding.  I think it was important to have the facts about public pensions before the nation’s highest court.  (11/17/15:  NCTR Files Amicus Brief Before U.S. Supreme Court to “Set the Record Straight” on Public Pensions)

This past year was also a very productive one for the National Institute on Retirement Security (NIRS), which continues to produce well-researched and highly-acclaimed work on issues of retirement security that have proven to be very helpful in demonstrating the effectiveness and efficiencies of public sector pensions and the defined benefit model.  Here are just a few of NIRS’ “Greatest Hits” of 2015:

  • Still a Better Bang for the Buck—technically released in late December of 2014 but receiving a great deal of attention in 2015—updated the seminal 2008 NIRS study with a similar name that has proven to be very helpful for supporters of the DB model when States have considered pension reforms. The new NIRS comparison of DB and DC plan costs, which takes into account recent developments in the retirement benefits landscape with regard to fees, investment strategies, and annuities, estimates that the economic efficiencies of the DB pension model enable these retirement plans to deliver the same retirement income at a 48% lower cost than 401(k)-type DC accounts.  (1/6/15:  In Case You Missed It: NIRS Releases Two New Reports)
  • NIRS released a new series of case studies in February that show that states that shifted retirement plans from defined benefit (DB) pension plans to defined contribution (DC) 401(k)-type individual accounts experienced higher costs. Case Studies of State Pension Plans that Switched to Defined Contribution Plans provides summaries of changes in three states―Alaska, Michigan, and West Virginia—and finds that the DB to DC switch exacerbated rather than solved any pension underfunding issues.  (2/10/15;  NIRS Finds Increased Costs When States Switch From DB to DC)
  • A nationwide public opinion poll conducted for NIRS found that an overwhelming majority of Americans—86 percent—believe that the nation faces a retirement crisis, and almost 75 percent are concerned about their own ability to achieve a secure retirement. These findings were contained in a research report, “Retirement Security 2015: Roadmap for Policy Makers | Americans’ Views of the Retirement Crisis,” issued by NIRS at the organization’s sixth annual retirement policy conference in Washington, D.C., on March 3, 2015.  The poll also found that Americans expressed strong support for pensions for public employees, with a very large majority (about 87 percent) saying pensions are a good way to recruit and retain qualified teachers, police officers, and firefighters.  (3/10/15:  New NIRS Poll Confirms that Americans Fear a Retirement Crisis, Support Traditional Pensions)
  • In a very significant report, NIRS examined how public DB plans address several key retirement security risks, including longevity. Specifically, NIRS also considered whether market-based tools, such as annuities, may help better manage longevity risk—for both individuals and plans themselves.  The NIRS issue brief, Retirement Security Risk: What Role Can Annuities Play in Easing Risks in Public Pension Plans?, found that fixed annuity retirement plans are more expensive than DB plans, with the cost of using fixed income annuities to fund DB pension benefits anywhere from 57 percent to over 175 percent more than the cost under a public pension’s diversified portfolio.  NIRS also found that benefits are more secure under DB pensions, and that insurance annuity contracts do not shift the risk from taxpayers.  (9/1/15:  NIRS Releases New Study on Role of Annuities in Addressing Retirement Security Risks)

Thank you, Diane, and all of the wonderful NIRS staff!

Finally, there were a number of other very helpful studies and reports released throughout 2015 that have provided significant support for the public sector DB model or documented many of the shortcomings of the DC approach:

  • While I may be accused of some personal bias, I think that one of the most significant studies produced in 2015 was the report of the Colorado State Auditor, prepared by Gabriel, Roeder, Smith & Company (GRS). It compares the cost and effectiveness of the Colorado Public Employees’ Retirement Association (COPERA) plan design to alternative plan designs in the public and private sector—including DC plans, the cash balance model, a combination DB/DC approach, and Social Security private sector model plans, both DB as well as DC—and documents that the COPERA retirement plan design is more efficient and uses dollars more effectively than any of the other types of plans in use today, providing “a higher level of benefits at the current cost than all alternative plans.”  Just a stunning report!  (7/14/15:  Colorado State Auditor: COPERA More Efficient, Less Expensive than All Alternative Models)
  • Another very important report that was released in 2015 is the comprehensive examination of cash balance plans—often promoted by opponents of teachers’ pension plans as a viable alternative to the traditional DB model—produced by Dr. Monique Morrissey with the Economic Policy Institute (EPI).  This comprehensive, well-researched report warns that cash balance plans and other “account-type” plans do not help states save money, but rather create more workforce management problems than they solve and actually increase retirement insecurity.  Morrissey warns that some cash balance plans can “turn retirement into a gamble” while others “provide the biggest benefits to job leavers, promoting high turnover.”  (3/17/15:  New Report Sounds Warnings Regarding Cash Balance Plans)
  • Our friends at the National Association of State Retirement Administrators (NASRA) also produced a number of very helpful reports in 2015, including an examination of the annual required contributions (ARCs) received by 112 state public pension plans from fiscal years 2001 to 2013. This shows that only a few states have conspicuously failed to adequately fund their pension plans, and that most states have instead made a good-faith funding effort, paying 95 percent or more of the ARC.  (3/17/15:  Snatching Defeat from the Jaws of Victory:  Biggs Comments on New NASRA Study on Funding)
  • “The Funding of State and Local Pensions: 2014–2018,” released in June of 2015 and produced by Alicia Munnell and Jean-Pierre Aubry, director and assistant director of State and Local Research, respectively, at the Center for Retirement Research (CRR) at Boston College, examined 150 plans whose $3.2 trillion in assets represent 90% of public plan assets.  Their research found that the funded status of these plans improved to 74% in 2014, compared with 72% the previous year, leading them to report that most public pension plans are “likely to be more than 80% funded by 2018.”  (6/23/15:  What a Difference a Day―and a Year―Can Make!  Two Views of Public Plan Funding)
  • CRR has produced a number of other helpful reports in 2015, including one in February of this year entitled “The Impact of Leakages on 401(k)/IRA Assets.” This report discusses the problems that are created by early withdrawals from 401(k)s and IRAs, which the authors say “depletes roughly one-fourth of account balances over a worker’s lifetime.”  The report is helpful in highlighting a problem that is often laid only at the feet of DB plans.  (4/7/15:  Leakage from 401(k) Accounts Has Costly Consequences)  A more recent report by CRR documents another shortcoming of DC plans when compared to DB plans, namely that the DB model’s investment performance is significantly better than the DC approach.  The new brief, entitled “Investment Returns: Defined Benefit vs. Defined Contribution Plans,” finds that during the period 1990–2012, private sector DB plans outperformed DC plans by 0.7 percent, with the differential remaining even after controlling for size and asset allocation.  CRR points to fees in DC accounts as the “likely explanation.”  (12/15/15:  New CRR Report Finds Private Sector DB Plan Investments Outperform DC Plans)
  • A March 2015 research paper from the Pension Research Council (PRC) at The Wharton School, University of Pennsylvania, also provides some important consequences resulting from one of the best-known public pension reforms, namely the ones that took effect in Utah in 2011.  These changes closed the existing DB plans to new employees and offered these workers instead a choice between a conventional DC plan, versus a hybrid plan option having both DB and DC elements. The PRC paper found that, post-reform, new hires were “more likely to leave public employment, resulting in higher turnover rates than previously,” and warned that this result “could reflect a reduction in the desirability of public employment under the new pension design,” implying that “public pension reformers must consider employee responses, in addition to potential cost savings, when developing and enacting major pension plan changes.”  A very important point in pension reforms that is often not considered enough, in my opinion.  (5/12/15:  In Case You Missed It: Wharton Paper Documents High Turnover Associated with Utah Pension Reforms)
  • Finally, although it actually came out in September of 2014, one of the papers that I find to be of continuing importance—and have, myself, often referred to in 2015—is a Callan Investments Institute research paper entitled “Saving Public Defined Benefit Plans.” The paper provides an excellent set of talking points that Callan intends to help move the discussion forward around the importance of DB plans, which Callan finds to be “viable and necessary” in the public sector.  These seven talking points are accompanied by research, data, charts and graphs, and actuarial considerations supporting them.  If you—and policymakers in your jurisdiction—are not familiar with this paper, you should remedy this in 2016!  (11/18/14:  New Callan “Talking Points” on DB Plans Provides Excellent Resource)

Something else that I began to notice in 2015 was somewhat of an improvement in coverage of public pension issues by the national press.  This is by no means at the point that it needs to be, but stories by Michael Hiltzik, a Pulitzer Prize winner who writes the daily blog “The Economy Hub” that appears every Sunday and Wednesday in the Los Angeles Times, have been encouraging.  (See, for example, 9/29/15:  In Defense of Teacher Pensions)  In April, Reuters also published an article by reporter Tim Reid exposing the plans of billionaire John Arnold to launch a national communications campaign against public pensions.  As Reid points out, no one has previously launched such a national publicity campaign, and the RFP gives no indication of how much money Arnold planned to spend on the campaign.  However, Reid also notes that Arnold has “given tens of millions of dollars to politicians and groups backing reforms of public pension plans in over a dozen states since 2008,” becoming “the dominant figure funding pension reform efforts in recent years, bankrolling ballot initiatives and groups in 25 jurisdictions that largely sought to cut pension benefits.”  The more light that the national press can throw on this man and his anti–public pension campaign, the better!  (4/14/15:  Media Focus on Arnold Foundation’s Anti–Public Pension PR Campaign)

And speaking of John Arnold, I would be remiss if I did not also point out the stepped-up effort to expose his plans by the National Public Pension Coalition (NPPC), as well as the American Federation of State, County and Municipal Employees (AFSCME), one of NPPC’s members.  For example:

  • NPPC and Californians for Retirement Security created a new website and Facebook page in 2015 that “traces the wide financial influence that one billionaire has on public pension fights.” The website describes itself as “a roadmap” that shows just how far billionaire John Arnold has gone “to decimate retirement security for millions of public servants all over the country.”  It contains a “Data by State” section with an interactive map of the United States.  Clicking on a highlighted state brings up a brief summary of the details of Arnold’s activity there, as well as the amount of monies that have been documented as supporting anti-public pension activities in that state.  (3/24/15:  New Website Tracks Arnold Foundation Anti-Public Pension Activity)
  • This is one of my favorites from 2015! Entitled “Enron Billionaire Arnold Has a Problem with Librarians’ Pensions,” AFSCME’s cartoon video about John Arnold and his plans explains how the billionaire has teamed up with the Pew Charitable Trusts “to talk about a REAL need:  the need to save our public workers from retirement security.”  “I’m a billionaire, funding a foundation that pays its employees six figures for a project designed to steal librarians’ pensions,” the video’s Arnold brags, proclaiming the strategy as “Classic!”  This is a must-see if you missed it!  (4/21/15:  John Arnold:  No Laughing Matter?)

There have been many more examples throughout 2015 that demonstrate that, as NCTR’s annual conference theme expressed it, public pension systems have been “Getting it Right.”  I hope that this brief tour of some of my favorite examples has provided you with additional Christmas cheer.

But I also need to end on a slightly more somber note:  We should expect to have our hands full in 2016.

Both Republicans and Democrats have stressed that they intend to deal with the Puerto Rican financial crisis within the first few months of the New Year, and Senator Hatch’s proposed legislation to do so still has public pension provisions included in it.  His actions in the last few days of 2015, as Congress worked to complete “must-pass” legislation, clearly indicate that he intends to keep them there, even though they will not do one thing to improve Puerto Rico’s current problems.

We will need to be prepared to once again mount a full-court press to keep such non-germane, un-vetted proposals out of a Puerto Rico “fix.”

But, until then, think happy thoughts!  Joan and I and the NCTR staff wish you all a warm and wonderful holiday season!

Note:  This is the final “NCTR FYI” of 2015.  We look forward to sharing topics and analysis with you in the New Year!