National Institute on Retirement Security

*LESSONS FROM WELL-FUNDED PUBLIC PENSIONS: AN ANALYSIS OF SIX PLANS THAT WEATHERED THE FINANCIAL STORM *[29 June 2011]

http://www.nirsonline.org/storage/nirs/documents/Lessons%20Learned/final_jun...

[full-text, 36 pages]

[excerpts]

In this study, we analyze six well-funded public pension plans

to learn what practices in terms of pension funding policy,

benefit design, and economic assumptions have resulted in

a better financial condition for these plans. This serves to

provide a platform for further discussion on pension benefit

reform in the public sector.

...

Through this analysis, we have identified the

following features of plan design and process that helped these

six plans remain affordable and sustainable over the long term,

and can inform the debates on public pension reform:

1. Employer pension contributions that pay the full amount of

the annual required contribution (ARC), and that maintain

stability in the contribution rate over time, that is, at least

equal the normal cost;

2. Employee contributions to help share in the cost of the

plan;

3. Benefit improvements such as multiplier increases that are

actuarially valued before adoption, and properly funded

upon adoption;

4. Cost of living adjustments (COLAs) that are granted

responsibly, for example through an ad hoc COLA that is

amortized quickly, or an automatic COLA that is capped

at a modest level;

5. Anti-spiking measures that ensure actuarial integrity and

transparency in pension benefit determination;

6. Economic actuarial assumptions, including both the

discount rate and inflation rate, that can reasonably be

expected to be achieved over the long term.

**************************************** Stuart Basefsky Director, IWS News Bureau Institute for Workplace Studies Cornell/ILR School 16 E. 34th Street, 4th Floor New York, NY 10016

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