Benefits December 6, 2012

Modifying Public Pensions Better than DC Switch

December 6, 2012 (PLANSPONSOR.com) – Closing a public employee defined benefit pension plan can cost substantially more than adjusting an existing plan, a report contends.
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The research issue brief, “On the Right Track? Public Pension Reforms in the Wake of the Financial Crisis,” by the National Institute on Retirement Security, says 45 states have enacted defined benefit (DB) pension plan reforms since 2008 to achieve affordability, sustainability and human resource goals rather than switching to defined contribution (DC) plans. The most common public pension plan modifications that have been implemented are increased employee contributions; reduced DB benefits for new hires including changes to retirement ages; and cost of living adjustment reductions for retirees and existing workers.

According to the report, distinct business and labor market dynamics and regulatory pressures led to the decline of pensions in the private sector that do not necessarily apply to governments. A policy of closing or freezing pensions and switching to DC accounts is not necessarily the best approach for government employers and taxpayers.

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The report also says freezing or closing DB plans and shifting to DC-only accounts threatens workers’ retirement security, with mid-career employees being the hardest hit. In addition, freezing or closing DB plans and shifting to DC accounts may negatively affect the ability of public employers to recruit and retain qualified workers (see “DB to DC Switch Negatively Affects Public Work Force”).  

Reports in several states, including Texas, Wisconsin and New Hampshire, have documented that DC plans would be more costly than DB plans (see “Texas TRS Finds Other Plans More Costly”).  

The issue brief can be downloaded from here.
Benefits December 6, 2012

Higher Ed. Plan Sponsors Looking to Simplify

December 6, 2012 (PLANSPONSOR.com) – Survey findings reveal that simplifying investment options is a top challenge for plan sponsors in the higher education industry.
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Plan sponsors continue to seek ways to facilitate administration and simplify decisionmaking for participants, according to the survey by Cammack LaRhette Consulting. Consolidating or reducing the number of vendor products (vendors and investment options) being offered to employees was ranked as the top challenge for plan sponsors, and more than half noted that changing the number of investments in their plan was a key initiative for the upcoming year. Sixty-three percent of plans offer 50 or fewer fund options, and 84% utilize only one or two vendors.

In addition, 22% of plan sponsors now have, or plan to implement, an automatic enrollment feature.  

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Despite the focus on simplifying options for employees, plan sponsors are not convinced that the new fee disclosure regulations will help participants make investment decisions; 25% of responders believe the regulations will actually make it more confusing for participants, whereas only 9% believe it will make it easier. Excessive administrative costs have led to an increasing focus on plan expenses, as indicated by the 19% who responded that changing how plan expenses are paid is a key initiative, up from 9% in 2011 and 2% in 2010. The use of expense reimbursement accounts, a mechanism that allows the plan sponsor to typically decrease fees by capturing revenue in excess of their recordkeeping costs, has jumped from 11% in 2011 to 43% in 2012.  

The survey also found heightened fiduciary concerns have made the use of consultants and advisers the norm, rather than the exception; 64% of plan sponsors utilize a consultant or investment adviser, up from just 33% in 2010.  

Employer contributions to higher education retirement plans remain robust and largely unchanged from 2011. The majority of universities in the study indicated an immediately vested employer contribution of 8% of pay or greater, through a combination of base and matching contributions.  

More than 100 of the country’s leading private colleges and universities responded to Cammack LaRhette’s Higher Education Retirement Plan Survey.

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