The fiscal stability of state and local government pensions has been the source of much retirement planning consternation, but the recent Future of Retirement summit, sponsored by the Center for State and Local Government Excellence, was upbeat about the issue.
The company’s CEO, Elizabeth Kellar, emphasized that the improving economy, including the uptick in housing, is improving most communities’ retirement fund balance sheets. And Alicia Munnell, director of the Center for Retirement Research at Boston College, pointed out that center’s most recent research in 2011 showed that public pension plans are 75 percent funded — still in the danger zone, but improving.
“I don’t think of it as an area where we’re going to see failure after failure after failure. If anything, I’m hopeful that we’re working our way through it,” Munnell said.
Some public pension funds were held out as better managed than others. Louis Kosiba, executive director of the Illinois Municipal Retirement Fund, said his fund was 88 percent funded and pointed to these basics as essential to this kind of stability:
- Independent board of trustees.
- Enforcement authority to collect employer contributions.
- An aggressive investment strategy.
- Sound actuarial assumptions.
Several summit speakers urged caution about switching from old-fashioned defined benefit plans to defined contribution plans such as 403(b) and 457 plans. “The evidence is pretty clear at this point that people do not accumulate very much in these plans,” Munnell said. “They make investment mistakes, they don’t join, and they take out their money when they change jobs.”
But Robert Clark, professor at the Poole College of Management, North Carolina State University, said these plans have advantages for people who leave public jobs before they qualify for defined benefit pensions. He also emphasized that public sector defined contribution plans are different than those in the private sector. They are mandatory, have much higher contribution levels and much lower fees.
Anyone can watch the whole discussion at SLGE.org. If you are concerned about this issue as either a public worker or a taxpayer, you will find the conversation thoughtful and encouraging.