Retirement insights from a Colorado PERA perspective

Issues & Perspectives

Solving pension challenges has not been easy in other states

pension challenges
Washington DC Capitol dome detail with waving american flag

States that close pension plans face increased costs, retirement insecurity

A new series of case
studies
released from the National Institute
on Retirement Security
(NIRS) shows that taxpayers’ costs increased when
four states closed their pension plans in favor of alternative plan designs. As
the states shifted new employees from their defined-benefit pension plans to
defined-contribution or cash-balance plans, they did not experience major
improvements in the funding of their existing pensions.

Key conclusions from the research, Enduring Challenges: Examining
the Experiences of States that Closed Pension Plans,
include:

  • Switching
    from a defined benefit pension plan to a defined contribution or cash balance
    plan did not address existing pension underfunding, despite claims that such
    changes would improve funding levels or slow growing liabilities of the
    retirement plans. Instead, costs for the states reviewed (Alaska, Kentucky, Michigan and
    West Virginia) increased after closing their
    pension plans.
  • Changing
    benefits for new hires does not solve existing funding shortfalls, as the
    experience of these states shows. Managing legacy costs is key to responsible
    funding of pension plans.
  • Greater
    retirement insecurity for employees has been a challenge due to changes in plan
    design, leading West Virginia to reopen its closed pension plan.
  • Other
    workforce challenges, such as difficulty recruiting and retaining public
    employees, are emerging as a result of the changes to retirement benefits. In
    Alaska, the Department of Public Safety lists the ability to offer a pension as
    a “critical need” for the department.

Download the NIRS case studies here.

Comments

  1. Allen Feldman says:

    The illusion on behalf of many critics of plans like PERA is that those who serve the public are not worthy of a retirement plan that does not include them. What is lost is the reality that such a plan does encourage many to serve in the face of low salaries and consistent public criticism. Thank you for sharing the research. Allen Feldman a retired teacher

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