State and Local Government

Pensions and Retiree Health Care
Joshua Franzel, PhD
Vice President of Research
Center for State and Local Government Excellence
May 20, 2014
National Press Foundation
This presentation has been created for general information purposes. It is not intended to give financial or professional advice.
The Center promotes excellence
in local and state governments
to attract and retain talented
public servants.

slge.org
About the Center for State and Local
Government Excellence (SLGE)…
SLGE Areas of Focus
• Retirement benefits and security
• Health care
• Compensation
• Human resource trends
• Workforce demographics
• Competitive employment practices
• Financial planning
The State and Local Government
Pension Plan Context
• Over 3,400 state and local government public
employee retirement systems (2011)
• 14.6 million active members and 8.6 million
retirees (2011)
• 83% of state and local workers have access
to a defined benefit pension plan
• 32% of state and local workers have access
to a defined contribution plan
• ~30% of state and local workers do not
participate in Social Security

Sources: (1) http://www.bls.gov/ncs/ebs/benefits/2013/ownership/govt/table02a.pdf ; (2) http://www.census.gov/govs/retire/ ; (3) http://www.nasra.org/socialsecurity
Defined Benefit Plan
Defined Contribution Plan
Choice between plan types
Hybrid Plan
(DB/DC or Cash Balance)
U.S. State Pension Plan Structures
State Employees
P
R
Source: National Conference of State Legislatures, Checklist of State Defined Benefit, Defined Contribution and Hybrid Plans for State Employees and Teachers (2012)
Note: Some of the structures listed have changed since 2012 (National Association of State Retirement Administrators).
The portion salary and benefits make up of
overall employer costs for employee
compensation (BLS)
Chart: SLGE / Data : BLS Employer Costs for Employee Compensation (2013)
State and Local Pensions:
Average Funded Ratio
Source: SLGE and BC-CRR Public Plans Database
Note: preliminary data for 2013
Distribution of Funded Ratios for
Public Plans (2012)
2%
21%
45%
27%
6%
0%
10%
20%
30%
40%
50%
20%-39% 40%-59% 60%-79% 80%-99% 100%
p
e
r
c
e
n
t
a
g
e

o
f

p
l
a
n
s

funded ratio ranges
Source: Munnell, Aubry, Hurwitz, Medenica ‘The Funding of State and Local Pensions: 2012–2016’ / SLGE and BC-CRR Public Plans Database
Note: totals do not equal 100% due to rounding.
Why are some plans better funded
than others?
• Consistent funding of the annual required contribution

• Appropriate full-retirement ages

• Realistic about assumptions

• Do not allow extraordinary income to be included in pension
formulas

• Take a long-term view; no contribution “holidays” in good
times; avoid retroactive benefit increases
SLGE ‘State and Local Pensions: An Overview of Funding Issues and Challenges’ and GFOA ‘Advisory: Responsible Management and Design Practices for
Defined Benefit Pension Plans’
Chart: SLGE / Data : SLGE / IPMA-HR / (NASPE) ‘The Great Recession and the State and Local Government Workforce’
Retirement Plan Changes
Over the past year, has your government made any changes to
the retirement benefits you offer to your employees?
Pension benefit reforms since 2008
0
5
10
15
20
25
n
u
m
b
e
r

o
f

s
t
a
t
e
s

New employees
Current employees
Retirees
Source: National Association of State Retirement Administrators , Center for State and Local Government Excellence, National Conference of State Legislatures
Retiree Health Care:
OPEB Unfunded Actuarial Accrued
Liabilities (UAAL) by State (2011-2012)*
Source: NASRA & SLGE: ‘Retiree Health Care Benefits for State Employees in 2013’ (Franzel & Brown)
Note: Years correspond to CAFR FY. For a couple of states this chart does not reflect 2011-2012 UAAL.
Percentage of State Government Units
Offering Insurance to Retirees
Chart: SLGE / NASRA ‘Retiree Health Care Benefits for State Employees in 2013’ (Franzel & Brown) / Data: Medical Expenditure Panel Survey, Agency for
Healthcare Research and Quality, U.S. Department of Health & Human Services
Changes States are Making to Retiree
Health Care
Most common changes…
• Increasing premiums or deductible amounts for state retirees
and/or their dependents
• Increasing copayment amounts

Other changes…
• Increasing the age of eligibility and/or years of service required
to vest in retiree health care
• Increasing the cap on retirees’ out of pocket expenses

Also of note…
• There has been an uptick in the number of states prefunding
retiree health care (at least partially prefunding)
SLGE / NASRA ‘Retiree Health Care Benefits for State Employees in 2013’ (Franzel & Brown)
Other Approaches Some States Have
Implemented or are Considering
for Retiree Health Care
• Wellness Programs
– Health Assessments and Preventative Care
– Weight Management and Obesity Programs
– Physical Fitness and Exercise Programs
– Tobacco Cessation Programs
– Educational Materials
– Incentive Programs (monetary/non-monetary)
– Others

• Chronic Care Management Programs

• Defined Contribution Retiree Health Care Models

SLGE ‘The Business Case for Wellness Programs in Public Employee Health Plans’ (Clark & Morrill) ; SLGE ‘At a Crossroads: The Financing and Future of
Health Benefits for State and Local Government Retirees’ (Kearney, C., et al.); SLGE / IPMA-HR / (NASPE) Annual Workforce Surveys
Challenges and Opportunities:
2014 and Beyond…
• Public employer costs and contributions

• Retiree healthcare and assets

• Supplemental retirement plans

• Employee financial education



Joshua Franzel, PhD
Vice President, Research
Center for State and Local Government Excellence
Washington, DC

jfranzel@slge.org


SLGE publications can be downloaded at: slge.org

This presentation has been created for general information purposes. It is not intended to give financial or professional advice.