Benefits April 29, 2014

States’ Pension Reform Reduced Potential Retirement Income

April 29, 2014 (PLANSPONSOR.com) – Public employees hired under new pension rules in many states can expect a lower retirement income compared with that of existing employees, an analysis finds.
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According to a report from the Center for State and Local Government Excellence and the National Association of State Retirement Administrators, calculations of the projected initial retirement benefit of state and local employees, before and after recent modifications were made to pension design and financing, shows reductions ranging from less than 1% (for new state employees in Colorado) to 20% (Alabama). The average benefit for the 24 states that changed variables in their benefit calculation equaled approximately 92.5% of the benefit produced under the prior conditions. In other words, the average benefit change in this analysis was a decrease of 7.5%.

The report concludes that given the benefit reductions, aside from Social Security (if the employee is eligible), public employees will need to take advantage of supplemental savings vehicles to maintain similar salary replacement rates in retirement, pre and post reform. In some states, employees will need to save more than $100,000 on their own.

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The report notes that as a result, many plan administrators are providing enhanced financial education and offering and promoting supplemental savings vehicles.

In addition, according to the report, in the states analyzed, reforms to retirement eligibility and employee contributions mean the average new employee will have to work approximately two years, eight months longer (holding all other variables constant) to reach the benefit level available to employees hired previously.

In some states, a hybrid defined benefit/defined contribution plan was set up as part of the reform. The researchers also analyzed the effects of these plans. In two of the five states studied, the hybrid plan may produce a diminished benefit when compared to the original defined benefit plan. In three of the five states, the hybrid plan may yield a benefit that is greater than the original defined benefit plan.

In the cases where the hybrid plan yields an enhanced benefit, the excess is made up exclusively of annuitized defined contribution earnings over time, the report says.

The full report, which includes methodologies for the analyses, can be downloaded from here.

Deals and People April 29, 2014

Mercer Investments Adds Consulting Staff

April 29, 2014 (PLANSPONSOR.com) – Employee benefits and financial services consulting firm Mercer added four new hires to its senior defined benefit (DB) and defined contribution (DC) consulting teams.
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New hires include the following:

  • Jean-Daniel Cȏté, most recently of ACT Actuaries in Montreal, has rejoined Mercer’s Canadian consulting team, with a primary focus on DC consulting relationships. Cȏté has more than 25 years of experience in pension consulting, DC administration and retirement investing. He is a former partner at Morneau Sobeco and served as president of Performa Financial Group, part of Standard Life. He is an associate of the Society of Actuaries and holds an M.B.A. from the John Molson School of Business at Concordia University and a B.A. degree in mathematics, statistics and actuarial science from the University of Montreal.
  • Rich Dabrowski, most recently of Strategic Investment Solutions, has also rejoined Mercer and will focus on corporate DB and DC consulting. Dabrowski has 26 years of consulting and investment management experience. He began his career at Mercer Investment Consulting and held a number of senior leadership roles including Midwest practice head and director of manager research. He received an M.B.A. from the Graduate School of Business at the University of Chicago and a B.S. in economics and finance from Elmhurst College. Dabrowski is a chartered financial analyst (CFA).
  • Peter Grant, previously with Towers Watson, will work primarily with corporate DB and DC plans and hospital investment pools and other institutional clients. Grant has more than 20 years of experience in investment consulting, first with Aon Hewitt and most recently at Towers Watson. He received an M.B.A. from Columbia University and graduated from Cornell University with a B.S. degree in applied economics and business management. He is also a CFA.
  • Mike Paolucci, previously with Segal RogersCasey, takes on responsibility for corporate DB and DC relationship management, and he will also advise health care clients. Paolucci has more than 15 years of experience in investment consulting, most recently as a client relationship manager at Segal RogersCasey, where he advised corporate pension plan sponsors and endowments and foundations. Previously, Paolucci was with R.V. Kuhns & Associates. He received an M.B.A. in finance and a B.B.A. in finance and economics from Cleveland State University.

Rich Nuzum, head of Mercer Investments in North America, says Mercer hopes the new hires will build additional delivery capacity ahead of projected growth in demand for benefits-related investment consulting and fiduciary management services.

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