Administration November 28, 2018

Proposals Could Further Erode Perceived Health of Public Pensions

Reporting proposals from the Actuarial Standards Board and Congress, as well as new proposed mortality tables from the Society of Actuaries could result in a higher valuation of pension obligations and lower funded levels for public pensions, according to Mike Moran with GSAM.

Reported by

Various proposals could affect reported funded levels for public pension plans, according to the first Public Pension Viewpoints by Goldman Sachs Asset Management (GSAM) Chief Pension Strategist Mike Moran.

Moran points out that the Actuarial Standards Board has proposed a revision to Actuarial Standard of Practice 4 (ASOP 4), “Measuring Pension Obligations and Determining Pension Plan Costs for Contributions,” which would call for actuaries to calculate and disclose an obligation measure to reflect the cost of effectively getting rid of the investment risk of the plan.  Discount rates to be used for this purpose could be based on, for example, U.S. Treasury Yields or rates at which the pension obligation could be effectively settled. 

For more stories like this, sign up for the PLANSPONSOR NEWSDash daily newsletter.

ASOP 4 is applicable to all types of pension plans, but Moran says public defined benefit (DB) plans would likely be the most impacted from a disclosure perspective given the difference in the way their liabilities are calculated today–which is generally based on the long-term annual expected return of the assets (EROA).

In addition, Congress has again introduced the Public Employee Pension Transparency Act (PEPTA), which would require public pensions to report annually their applicable unfunded liabilities calculated using U.S. Treasury bond rates—rates that are “notably below the discount rates used by plans today.” Moran says this, as well as ASOP 4, would result in a higher valuation of the pension obligation and a lower funded level.

Other things that could affect the perceived health of the U.S. public DB system include ratings agencies’ adjustment of public pension liabilities and a proposal of new public retirement plan mortality tables from the Society of Actuaries (SOA). Moran says for several years, Moody’s has been adjusting reported public pension liabilities using high-quality, taxable bonds as the discount rate. Fitch uses a fixed 6% investment-return assumption for public pension liability valuation; however, the average return assumption used by public pensions is 7.5%.

The SOA’s exposure draft of new public retirement plan mortality tables generally show longer life expectancy than the average mortality assumptions used by the plans in its study. Comments on the Exposure Draft were due by October 31, and Moran says, depending on the path the SOA takes, as well as the specific assumptions currently used by a plan, this could also lead to higher pension obligations and lower funded levels.

In the Viewpoints report, Moran also discusses asset allocation changes taken by public plans and provides market insights. The report is here.
Data and Research November 28, 2018

Benefits Are More Important to Americans than a Raise

A 401(k) match and health insurance are the benefits they value the most.

Reported by

Eighty percent of Americans would favor a job that offered high-quality workplace benefits over one that paid 30% more salary but no benefits, the American Institute of CPAs (AICPA) learned in a survey of 2,026 adults. Only 20% would prefer the job with the higher salary but no benefits.

Asked which workplace benefits would help them reach their goals, a 401(k) match and health insurance tie at 56% each. That is followed by paid time off (33%), a pension (31%), flexible work hours (21%) and working remotely (15%).

Workers believe that their benefits represent 40% of their total compensation. However, according to statistics from the Bureau of Labor Statistics, they average 31.7% of a total compensation package.

Get more!  Sign up for PLANSPONSOR newsletters.

AICPA also learned that 29% of Americans are considering switching jobs in the next year. This means that employers need to ensure that they offer benefits, AICPA says.

“A robust benefits package is often a large chunk of total compensation, but it’s the employees’ job to make sure they’re taking advantage of it to improve their financial positions and quality of life,” says Greg Anton, chairman of AICPA’s National CPA Financial Literacy Commission. “Beyond the dollar value of having good benefits, employees gain peace of mind knowing they can take vacation without losing a week’s pay, or if they need to see a doctor, they won’t be responsible for the entire cost.”

Eighty-eight percent said they are confident they understood the benefits offered when they accepted their current job. Eighty-six percent are confident they have kept up-to-date with changes to those benefits, and 86% are confident they know where to get information about these benefits. However, only 28% are very confident they are using these benefits to their fullest potential.

“Despite overestimating the value of their benefits as part of their total compensation, it is concerning that Americans are not taking full advantage of them,” Anton adds. “Imagine how employees would react if they were not 100% confident they could get to all the money in their paycheck. Leaving benefits underutilized should be treated the same way.”

The Harris Poll conducted the online survey for AICPA in April.



«