Benefits December 16, 2011

Mich. Governor Signs Bills Offering State Workers More Benefit Options

December 16, 2011 (PLANSPONSOR.com) – Michigan Governor Rick Snyder signed two bills to change the way the state manages retiree healthcare. 
 
Reported by

In addition to changing retiree healthcare, the bills will cut the state’s long-term unfunded liability by one-third (from $14.5 billion to $8.9 billion).

The law gives workers in the defined contribution plan hired between March 31, 1997 and before Jan. 1, 2012, the choice of remaining in the plan for retiree healthcare or cashing in their existing years of service and moving the money to the state’s 401(k) or 457 plan. For new hires, as well as those electing to switch to the new plan, the state will provide an extra 2% match to be deposited into the state’s 401(k) plan as an incentive to save for their post-retirement healthcare needs. Employees hired after Jan. 1, 2012, will also receive a state deposit of $2,000 into a health reimbursement account upon retirement.

Get more!  Sign up for PLANSPONSOR newsletters.

The legislation does not change the retiree healthcare plan or coverage available to defined benefit pension employees hired before March 31, 1997, which is when the state moved away from a pension plan in favor of a defined contribution plan. Employees who are still members of the pension plan, who currently do not pay for the benefit, will now be given the choice to pay 4% of their salary to maintain the benefit and remain in the pension plan. Those choosing not to pay the 4% would exit the defined benefit program for future service, have the level of their pension frozen at current levels, and switch to the defined contribution plan.



“Post-employment benefits have simply become unsustainable for the state, with 22% of the active work force payroll going toward retiree healthcare,” said State Budget Director John Nixon. “This new approach allows the state to reduce and cap that liability, while giving employees a state match to fund their retiree health care once they reach retirement age.”

The legislation also refunds the 3% contribution toward retiree healthcare that all state workers have been paying for more than a year, effectively eliminating the state’s appeal to the Supreme Court on whether the withholding was legal. This withholding from state employee paychecks will stop immediately with the December 22 payroll. Employees will be given the choice of how they want to receive their refund, either in their paycheck or as a deposit into their 401(k) or 457 account, and then receive the funds on January 19, 2012.

Administration December 16, 2011

Stanford Institute Says Pension Contribution Rates Could Double in San Jose

December 16, 2011 (PLANSPONSOR.com) – Contribution rates that San Jose, California’s state government pension plans pay each year are expected to double over the next four years. 
 
Reported by

The Stanford Institute for Economic Policy Research (SIEPR) released a report on San Jose’s Federated and Safety pension systems, which provide retirement benefits to miscellaneous and safety employees. According to the report, barring new revenues, pension spending for the San Jose plan is likely to rise from its current 18.4% share of General Fund spending to 32.7%.

Other key findings from the report include:
•  Delay in implementing solutions to the pension problem increases the costs to San Jose. Under mid-case assumptions, the annual cost of delaying pension solutions is more than $8 million over the next year. Costs increase in subsequent years.
•  June 2010 funded ratios, under middle case assumptions, are 46.4% for Federated and 54.8% for Safety. Most argue for a funded ratio of at least 80%. Private plans with a funded status below 80% are required to freeze benefits and face other restrictions.
•  The total unfunded liability for the Federated and Safety systems under middle case assumptions is $3.6 billion, or $11,500 per household.
•  It is highly unlikely that San Jose’s pension systems will invest their way out of their funding problems. Even assuming investment returns of nearly 8%, the probability of San Jose’s systems fully meeting their obligations is only 12%. In fact, the likelihood is 33% that the systems will fall short by a combined $10 billion in the next 16 years.

Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.

The authors conclude that San Jose should continue with its reform measures and seek general fund revenue increases, further increases in employee contributions and prospective benefit reductions for current employees.

The report was authored by Stanford Professor of the Practice of Public Policy Joe Nation, with the assistance of California Common Sense (CACS) and Stanford junior Evan Storms. Earlier this week, SIEPR and CACS released another report on statewide pension systems (see SIEPR Report Calls For Reform to Calif. Pension System).

To view the report, visit siepr.stanford.edu. 

«