National Conference on Public Employee Retirement Systems. CSG Policy Academy: Public Pensions Hank Kim, Esq. Executive Director & Counsel

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1 CSG Policy Academy: Public Pensions Hank Kim, Esq. Executive Director & Counsel National Conference on Public Employee Retirement Systems

2 NCPERS Largest nonprofit trade association representing 500 public sector DB plans that have more than $3 trillion in assets. Who we ARE: Advocacy Research Education 2

3 3 NCPERS Position All workers (public and private) should have a traditional pension benefit (DB plan) as their primary pension plan DB plans are good for governments, employees, taxpayers and the economy

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5 Are Public Pensions Sustainable? Most certainly yes when: Sponsors make their contributions consistently and fully. Employees make their contributions. Investments are well managed and fees are low. Benefits are appropriate and funded. 5

6 Public Pension History Public pensions have been around for more than 150 years New York state established benefit for NYC police FDNY gets benefit First teachers benefit s state plans in ND, CA, MA, CT, PA, NJ. Most public plans established soon after

7 7 National Conference on Public Employee Retirement Systems Major Pension Enactments

8 Public Pension Challenges Consistent and full plan sponsor funding Dense and complicated topic Pension envy Lingering effects of the Great Recession State tax expenditures and revenue loss Repurposing of reform benefits Outright reneging of promises to contribute Political agenda and philosophical beliefs Misunderstanding of Detroit 8

9 Why No Other City is Like Detroit July 18, 2013 Detroit files for Chapter 9 $18 billion debt of which $800 million - $3.2 billion is due to public pensions But no other jurisdiction is like Detroit: Unprecedented loss of population and jobs Michigan reneged on its revenue sharing Bad interest rate bet Gov. forced Detroit into bankruptcy 9

10 Secure Choice Pensions (SCP) Public-Private Partnership to bring retirement security to the private sector by leveraging the investment expertise and economies of scale of public pension plans 10

11 Why State Based SCP? Retirement security means productive, taxpaying retirees. Limits social safety net expenditures. Helps manage workforce. Role for states. Bottom line: it s in your interest. 11

12 12 SCP Estimated Income Replacement Entry Age Expected Social Security Replacement Ratio 1 ESTIMATED REPLACEMENT RATIOS WITH A 5% INTEREST CREDITING RATE Replacement Ratio from Expected Personal Savings Including 401(k) 2 Total Replacement Ratio with Social Security and Personal Savings Only Expected SCP Replacement Ratio 3 Total Replacement Ratio with SCP 25 30% 25% 55% 29% 84% 35 26% 18% 44% 21% 65% 45 17% 11% 28% 13% 41% 1 Calculated using 2011 Social Security bend points and assuming career earnings consistent with national average. For ages 35 and 45, the replacement ratio is prorated to reflect the fraction of a participant s 35 years of covered earnings used in Social Security Primary Insurance Amount calculation which would be earned under their tenure with their current employer if they worked until age Calculated using assumed salary increases based on age, an average return of 5% per year, a contribution rate of 6% per year, retirement of age 65, and annuity conversion based on PBGC annuity valuation assumptions. 3 Calculated using assumed salary increases based on age, and an expected credited interest rate of 5% per year. Retirement Income Replacement Gap: Surveys report individuals estimate 60% as adequate when 80% to 90% is needed.

13 State Actions 2012 & 2013 Enactments Massachusetts Treasurer will manage a separate trust for small non-profits California CA Secure Choice Retirement Savings Trust Act Oregon Enacted study commission to look into PPP Legislative Targets Arizona* Nebraska Colorado * New Mexico Connecticut* New York Florida North Carolina Hawaii Ohio* Illinois* Vermont* Indiana* Virginia Maryland* Washington* Maine* West Virginia* Minnesota* Wisconsin* *Indicates legislation introduced 13

14 Small business owners overwhelmingly support the Secure Choice Pension, regardless of whether or not they already provide a retirement benefit to their employees. The Secure Choice Plan Proposal 82 All Small Business +67 Benefits No Benefits Favor Oppose Don't Know Favor Oppose Favor Oppose Now, please tell me if you would favor or oppose this proposal having this type of retirement plan available for small private employers? [FAVOR/OPPOSE] Is that strongly or somewhat? 14

15 Three out of four small business owners who provide retirement benefits are interested in the Secure Choice Pension for their own employees. A majority of those not providing benefits are also interested. Interest in the Secure Choice Plan for their Employees All Small Business Owners Benefits No Benefits Interested Not Interested Don't know Interested Not Interested Interested Not Interested And thinking about your own small business, would you be very interested, somewhat interested, not too interested, or not at all interested in this type of retirement plan for your own employees? 15

16 Campaign to bring awareness and support for SCPs We want ordinary Americans telling elected officials to make SCPs a reality We want employers and employees who don t have pensions to say they want SCPs We want folks who have pensions to say we support working Americans to have SCPs 16

17 17 NCPERS Educational Programs Public Safety Employee Pension & Benefits Conference October 26-29, 2014 in New Orleans, LA Legislative Conference & Healthcare Symposium January 25-28, 2015 in Washington, DC Trustee Educational Seminar May 2-3, 2015 in New Orleans, LA Annual Conference & Exhibition May 3-7, 2015 in New Orleans, LA Public Pension Funding Forum August 24-25, 2015 at UC-Berkeley, Berkeley, CA

18 Thank You NCPERS 444 North Capitol Street, NW, Suite 630 Washington, DC