Public Employee Pension Plans

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These executive summaries were compiled from EMPLOYEE BENEFITS INFOSOURCE database, a source for information on employee benefits and human resources.

The Funding of Public Sector Pension Plans: Are They Truly in Crisis Mode?
Kozak, Barry; Benefits Law Journal; v21 no4 pp 23-40 Winter 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Pension Protection Act of 2006 stressed the importance of funding for private sector pension plans with minimum funding requirements. But public sector plans have no such rule and little comparability between plans on funding or valuation methods. These plans should establish reasonable funding ratios to target, discount rates to assess plan liabilities and investment policies. Although most public plans are not in dire financial straights and no federal law mandates their action to solidify their funding, it is only prudent that officials responsible for the plans take issues seriously to avoid dealing with economic disaster.
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Notice 2008-102: 2009 Limitations Adjusted as Provided in Section 415(d), etc.
Internal Revenue Bulletin; no2008-45 pp 1106-1107 Nov 10, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Limits on qualified plan benefits and contributions are reflected in Internal Revenue Code Section 415 and adjusted annually to reflect the cost of living. The adjustments raise the limits for annual benefits in defined benefit pension plans to $195,000 and to $49,000 for defined contribution plans. Limits are also raised for catch up contributions, simplified employee pension plans, SIMPLE retirement accounts, state and local plans and more.
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IRS Will Modify Filing Cycle for Governmental Plans Under the Staggered Remedial Amendment Program.
employee plans news; pp 1-2 Nov 5, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Because of unavoidable obstacles that can prevent a government plan sponsor from filing for a remedial amendment determination letter on time in Cycle C, the IRS will allow Cycle C plans to file during Cycle E for one filing period. The first deadline for Cycle C is January 31, 2009. Sponsors can choose to simply delay filing with no IRS notice required. Those who have filed for a determination letter may request to withdraw their application by January 31, 2009. After this one-time change opportunity, all Cycle C filers will continue on Cycle C.
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Pensions: Freezing Defined Benefit Plan Raises Costs, Reduces Benefits, Retirement Institute Says.
Wyand, Michael W.; Daily Labor Report; v213 p A5 Nov 4, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Research by the National Institute on Retirement Security shows that freezing a defined benefit (DB) plan and moving to a defined contribution (DC) plan is unlikely to yield cost savings and can actually worsen the economic picture. Maintaining two plans increases expenses and adds complexity. Sponsors lose the efficiency and professional management of a DB plan at a financially risky time and face different accounting rules that accelerate their contribution obligations. The change can have a negative impact on recruitment, retention and morale. A better approach may be to modify benefits in an existing plan.
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Notice 2008-98: Extension of Effective Date of Normal Retirement Age Regulations for Governmental Plans.
Internal Revenue Bulletin; no2008-44 pp 1080-1081 Nov 3, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The IRS and Department of Treasury will extend the date when governmental plans must comply with a change in the rule for pension plan distributions. The final regulations of May 22, 2007 changed Internal Revenue Code Section 1.401(a)-(1)(b)(1)(i). Under this change, government plan participants are no longer required to reach age 65 and separate from employment to start receiving retirement benefit distributions. The normal retirement age will be considered within the context of the industry, making it as low as 50 years for public safety occupations. This notice applies to government plan years starting on or after January 1, 2011.
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Public Plans: Oregon PERS Can Change Actuarial Factors Without Violating Consent Decree, Court Says.
Meyer, Jo-el J.; BNA's Pension & Benefits Reporter; v35 no38 p 2,175 Sep 23, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Four female Oregon state workers filed a suit in 1974 objecting to the use of different life expectancy tables for men and women favoring men for annuity calculations. A related Supreme Court case decision prompted the parties to settle, with a consent decree by the Public Employees Retirement System (PERS) to stop using life expectancy tables differentiated by gender. The PERS used the male tables until 2003 when it adjusted calculations. The original plaintiffs argued the revised calculation illegally created a floor on annuity allowances. The Ninth Circuit Appeals Court upheld the district court's dismissal of the case, ruling PERS could change its calculation. The consent decree mandated using the same tables without requiring the 1978 male table figures be the minimum.
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Pensions: Pension Plans Increasing Investments in Hedge Funds, Conference Board Says.
Wyand, Michael W.; Daily Labor Report; no172 p A4 Sep 5, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Conference Board's 2008 Institutional Investment Report indicates hedge fund investment remains small overall but is growing and at an increasing rate. The largest 200 pension funds' investments in hedge funds rose from $29.9 billion in 2005 to $50.5 billion in 2006 to $76.3 billion in 2007. The percentage of their assets rose from 0.7 percent to 1.0 percent to 1.4 percent, and some also invested in other alternative asset classes. From 2006 to 2007, the number of public pension funds invested in hedge funds increased from 25 to 37, while corporate funds invested in hedge funds rose from 23 to 25. Pension funds are the major institutional investors, and their hedge fund investments are the primary driver of hedge fund growth.
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The Final 403(b) Regulations: An Extreme Makeover.
Albrecht, L. Joann; ASPPA Journal; v38 no4 pp 20-26 Fall 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Starting January 1, 2009, virtually all 403(b) plans must have detailed written documentation. IRS Rev. Proc. 2007-71 provides model plan language for school districts. Fiduciary duties are determined by ERISA or by state law, depending on whether a plan is an ERISA plan or not. Non-ERISA plans can maintain their status by following conditions to qualify for safe harbor, largely limiting the employer's role in plan administration. The traditional 90-24 money transfers continue but with strict conditions added. There is transitional relief for handling orphan contracts. Plan termination is possible but complex, since member permission may entail high individual contract termination fees.
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The IRS Pays a Call on Public Retirement Plans.
Glyde, Craig; Milliman: PERiScope; 2 pp Sep 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : On April 22, 2008, the IRS held a round table meeting with government retirement plans to encourage government plans to file for a determination letter certifying their compliance with the Internal Revenue Code. It also indicated it would increase its oversight and examination of government plans. A favorable determination letter indicates that the plan described in the written plan document meets Internal Revenue Code qualification requirements. Having a determination letter also provides access to other IRS programs such as the Employee Plan Compliance Resolution System. Public plans intending to file for a determination letter should take preparatory steps prior to the January 31, 2009 deadline.
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Back to School Guidance.
employee plans news; 2 pp Aug 25, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : IRS Notice 2008-62 is of importance to schools, addressing tax treatment under Internal Revenue Code Section 457(f) and Section 409A. Payments made to staff over 12 months spanning a two-year period will not constitute deferred compensation if it meets two conditions. The deferred payment must not go beyond the last day of the 13th month after the start of the service period, and it must not exceed the deferral limit in place for the year. For 2008, the deferral limit is $15,500. The regulation applies to 401(k) plans, 403(b) plans and 457(f) plans.
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Public Plans: N.C. Appeals Court Upholds Ruling That Pension Money Diversion Improper.
BNA's Pension & Benefits Reporter; v35 no32 p 1,876 Aug 12, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Stone v. North Carolina, the North Carolina Court of Appeals ruled the state could not borrow funds from the Teachers' and State Employees' Retirement System to cover a state budget shortfall. Gov. Mike Easley used an executive order to tap the funds, since the state constitution prohibits a budgetary deficit. But the appeals court upheld the lower court's ruling and pointed out that there were other funding options available. The plaintiffs will seek interest on the diverted funds and legal costs.
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Public Entities Generally Keep Traditional Pension Plans.
Wojcik, Joanne; Business Insurance; v42 no32 pp 9-10 Aug 11, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Some state legislatures, anxious about their public retirement plans, are looking into strategies to strengthen funding. Options being explored include increasing the retirement age, boosting worker contributions, lowering cost of living adjustments and capping the maximum payout. Though reports by the Government Accountability Office, Pew Charitable Trusts and Wilshire Associates find plans to be on generally stable ground, funding may have slipped with the economic downturn, and there are concerns for the future. Public entities are unlikely to switch to defined contribution plans, but some are adding them as a choice. Defined benefit plans still offer an operational cost advantage.
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Public Sector Employee Pensions: An Overview.
Pozzebon, Silvana; Canadian Benefits & Compensation Digest; v26 no4 pp 10-13 Aug 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Retirement income in Canada typically comes from Old Age Security and the Canada or Quebec Pension Plan, employer-sponsored plans and individual savings. Most occupational plans are registered pension plans (RPPs) with defined benefits, bound by laws mandating minimum pension standards and enjoying favorable tax treatment. RPP membership in 2005 was 87 percent among public sector workers and rising since 1991 but only 26 percent among private sector workers and falling. Defined contribution plans have risen in both sectors but especially in the private sector. Public sector plans are more generous, partly due to the required employee contribution in most. But they face funding risks from the many employees approaching retirement, declining ratio of workers to retirees and retirees' greater longevity.
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Link To Full Article
Public Sector Eyes DC Plans to Offset Benefit Costs.
Bridgeford, Lydell C.; Employee Benefit News; v22 no10 pp 1, 68-69 Aug 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Public pension benefits must be safe and sufficient, and their employer funding must be adequate and manageable. As meeting those goals becomes increasingly difficult, more local and state governments are turning to defined contribution (DC) plans to strengthen their retirement programs. Total assets in public sector DC plans have increased almost ten percent since 2006 and make up 13 percent of the DC market. By 2013 it is predicted that DC growth in public sector plans will surpass that of private sector growth by two to three percent a year.
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Truth vs. Honesty.
Findlay, Gary; PLANSPONSOR; v16 no6 pp 58-59 Aug 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Cost of living adjustments (COLAs) are a common feature of defined benefit (DB) pension plans for public employees. Some critics argue that public employees should not receive them if corporate employees are not also entitled to them. The assumption behind COLAs is that inflation will erode pension benefits after retirement, so annual increases to offset inflation should be figured in. Sponsors are encouraged to add wording to their plan documentation explaining the financial assumptions behind the plan design and encouraging participants to save additional funds to supplement their retirement benefits.
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Annuities: IRS Official Debunks 'Six Myths' About Section 403(b) Plan Regulations.
Ben-Yosef, Andrea L.; BNA's Pension & Benefits Reporter; v35 no30 p 1,749 Jul 29, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : One of the six myths surrounding the updated 403(b) regulations suggests that a public education entity can fall under ERISA. In fact, no matter what schools do they will not become subject to ERISA. They do have fiduciary duties, though, and should check their state and local laws concerning regulations applying to school districts. Another myth says participants' rights to rollover their plans will be impeded as of January 1, 2009. The truth is participants will have the right to rollover at distributable events. It is not necessarily true that 403(b) plans located where a collective bargaining agreement (CBA) exists may have a delayed date. It would only be true if the plan is the result of the CBA.
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Retiree Benefits: GASB Issues Draft Guidance on Adjusting Contributions for Postretirement Benefits.
Burkholder, Steve; Daily Labor Report; no141 p A5 Jul 23, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : On July 21, 2008 the Governmental Accounting Standards Board (GASB) issued guidelines intended to clarify annual required contribution (ARC) accounting adjustments. The GASB's purpose is to support the use of actual amounts, where they are known, in calculating the ARC adjustment. When the standards were originally enacted and applied to existing plans, it was thought necessary to estimate ARC adjustments because actual amounts were unknown. But, when governments have the actual numbers as they do with new retirement benefits, the GASB wants them to use those figures for ARC adjustments.
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Section 403(b) Plans: New IRS Revenue Procedure Lends Urgency to Writing Proposals for Plans, SPARK Says.
Olsen, Florence; BNA's Pension & Benefits Reporter; v35 no29 p 1,698 Jul 22, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Instead of simply providing payroll deduction and transfer to plan service providers, beginning January 2009 public school employers will have to begin administering the 403(b) plans of their employees. In anticipation of this change, the Society of Professional Asset Managers and Record Keepers (SPARK) has released a guide to assist school districts in seeking bids from service providers. For each stage in the search for a provider, the guide gives detailed questions that schools and other tax exempt organizations should ask. The questions start with determining which services should be handled in house and which by the provider. An evaluation matrix is included with the guide.
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The Other Real Estate Disaster.
Fitch, Stephane; Forbes; v182 no1 pp 65-70 Jul 21, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Parallel to the residential real estate meltdown is one in the commercial market affecting institutional investments and state pension plan members. Highly leveraged and unregulated real estate opportunity funds lured investors expecting big gains, but the funds face substantial, hard-to-measure losses. Returns are not adjusted for risk. A sample of 77 opportunity funds shows mediocre to disastrous performance, and pension fund managers are trying to avoid freedom of information requests about their value. Taxpayers, who provided the capital for state plans, are stuck with the losses.
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Age Discrimination: State Justices Avoid Reverse Age Bias Issue, Find Early Retirement Plan Fit ICRA Exception.
Daily Labor Report; no123 p A2 Jun 26, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In Weddum v. Davenport Community School District, the Iowa Supreme Court ruled a school district's retirement incentive plan did not violate state age discrimination civil rights law since the Iowa Civil Rights Act (ICRA) specifically allows school boards to determine early retirement age. The Court also found the school board's explanation for not being willing to extend the date of reaching age 55 was not age discriminatory. If the school board had extended the date beyond June 30, the cash incentive would have had to come from the general fund instead of the management levy fund intended for plan use. The court reversed the lower court's ruling and directed it to enter summary judgment for the defendant.
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Disability Benefits: High Court Rules 5-4 ADEA Doesn't Bar Disability Benefits Disparity Based on Age.
BNA's Pension & Benefits Reporter; v35 no25 p 1,504 Jun 24, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : The Kentucky Retirement System provides higher disability benefits to hazardous duty workers who retire on disability before normal retirement age compared with benefits for those who become disabled after reaching that age. In Kentucky Retirement System v. EEOC, five Supreme Court justices agreed the practice does not reflect age bias. The system allows imputed service years for those who become disabled. A younger employee who becomes disabled before normal retirement age can get more credit to reach retirement eligibility than an older worker with the same tenure might need, resulting in different pension calculations. The majority attributed any apparent bias to plan rules and differentiated between the timing of benefits eligibility and actual benefits calculation. The defendant Equal Employment Opportunity Commission (EEOC) and four justices contended the plan provision is fundamentally age discriminatory.
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Public Plans: Most West Virginia Teachers to Switch to Defined Benefit Pension Plan July 1.
BNA's Pension & Benefits Reporter; v35 no25 p 1,489 Jun 24, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : In 1991, West Virginia closed its underfunded defined benefit (DB) plan and moved participants to a 401(k) type defined contribution (DC) plan. Poor investment performance by the replacement plan ultimately prompted passage of a law permitting the teachers to move back, and over 78 percent chose to do so. Under the DB plan, members contribute six percent of pay, compared with 4.5 percent under the DC plan. Matching contributions of 7.5 percent apply to both, but those hired before July 1, 2005 get a 15 percent match. To get full benefits, teachers moving back to the DB plan can pay 1.5 percent of their salary for every year in the DC plan plus interest. The state is looking at ways to cover the extra cost.
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Everything You Always Wanted to Know About a Public Employer's Ability to Modify Retiree Benefits but Were Too Afraid to Ask.
Baker, James P.; Lui, Elwood; Poirier-Whitley, Kirstin; Griffin, Sarah Heck; Benefits Law Journal; v21 no2 pp 83-102 Summer 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Historically public employee pensions were treated as an impermanent gratuity. Some states, such as Texas, continue to treat them as such. Pension benefits are more commonly treated as a right by implied contract. Most states follow California and permit reasonable modification of benefits before an employee's retirement. Some, such as Arizona, see pension rights vesting at the start of employment. In most states, unions cannot bargain away vested pension rights, but benefits originating in collective bargaining may be renegotiated for preretirees. California and Alaska protect postretirement health benefits, but these are being eroded in many other jurisdictions. Public employers should assess their liability and consider methods to prefund their obligations as permitted by contract terms.
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The Effect of State-Legalized Same-Sex Marriage on Social Security Benefits and Pensions.
Haltzel, Laura; Purcell, Patrick J.; Journal of Pension Planning & Compliance; v34 no2 pp 42-47 Summer 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Under the Defense of Marriage Act, same sex spouses are not eligible for social security benefits. Public and private pensions governed by ERISA are also required to define spouses as being of opposite sex. Pending legislation concerning this issue in mid-2008 ranges from H.J. Res. 22, a proposal to amend the U.S. Constitution to say that marriage in the United States shall consist only of a legal union of one man and one woman, to S. 2521, the Domestic Partner Benefits and Obligations Act, which would extend benefits to domestic partners of federal employees. This act would provide health benefits, long term care insurance and retirement benefits to same sex domestic partners.
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Public Plans: Report Examines Funding Levels Among State and Local Pension Plans.
BNA's Pension & Benefits Reporter; v35 no20 p 1,070 May 13, 2008; journal article

Availability : International Foundation of Employee Benefit Plans
Abstract : Among state and local pension plans, 40 percent face inadequate funding, according to a report by the Center for Retirement Research of Boston College. The report analyzed the 2006 Public Fund Survey by the National Association of State Retirement Administrators. The analysis shows funding discipline, governance, plan characteristics and the fiscal health of the state to be key factors of funding status. Plans having established rigorous funding processes and those with independent investment councils tend to be better funded. Generous benefit plans for teachers tend to be underfunded.
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