A new report provides a comprehensive overview of the many aspects of public sector hybrid retirement plan designs. The report finds that some shifts to hybrid designs were made without a proper evaluation of the long-term implications of the plan changes. In contrast, other hybrids are well-thought-out and more likely to provide retirement security to employees, enabling public employers to recruit and retain a qualified workforce.
A hybrid is not one particular plan design, but instead is an umbrella term capturing a wide range of different plan designs. Some hybrids are defined benefit (DB) pensions with risk-sharing provisions, while others blend attributes of DB and defined contribution (DC) plans. Each of these plan designs offers tradeoffs in terms of retirement benefits, risks, and costs.
Author(s): Dan Doonan, Elizabeth Wiley
Publication Date: 10 May 2021
Publication Site: National Institute on Retirement Security
[this relates to people in Chile being allowed to taking fairly large withdrawals from their official retirement savings]
This Monday, the application process will begin through digital platforms within the framework of the new 10% third withdrawal law.
As detailed by the Undersecretary of Social Welfare, Pedro Pizarro, the process will begin 100% online during the first two weeks of May, both for AFP users and for the nearly 700 thousand pensioners through the life annuity modality , who for the first time may request a cash advance.
A bill to change the pension plan for public employees will be one of the last measures the Legislature will consider.
It would affect people hired after January first, 2023.
Right now it’s a “defined benefit” plan. The bill would make it a “defined contribution” plan.
The current system has an unfunded liability of $1.4 billion. And the proposal would put money toward the current plan over several years to pay that down. Supporters say people who are on the defined benefit plan would have an option to convert to a defined contribution plan, but that would not be mandated.
A closer look at the FRS shows that there is no problem to be fixed, leaving SB 84 little more than a vehicle to divert millions that would appreciate over time into alternative — and riskier — investment funds managed by Wall Street firms friendly to Republican politicians.
The Senate’s consternation over Florida’s retirement program might surprise people who actually know something about it. The state’s pension program still has a AAA credit rating and a very manageable liability relative to the size of Florida’s economy. Its funded ratio sits among the nation’s best. Its sizeable returns on investment pay the bulk of retirement benefits.
“I would say overall that we’re in a reasonably good place, and we’re heading in the right direction,” said Ash Williams, executive director and chief investment officer for the State Board of Administration, the body responsible for managing the state’s defined contribution program.
Amid fierce opposition from Democrats, the Florida Senate on Thursday approved a proposal that would block future teachers and other government workers from enrolling in the state’s traditional pension plan.
The Senate voted 24-16 to back the change, which would take effect with employees hired as of July 1, 2022. Those workers would be required to enroll in a 401(k)-style plan — though what are known as “special risk” employees, such as law-enforcement officers, correctional officers and firefighters, would still be able to take part in the traditional pension system.
Lawmakers have debated such a move for years, as private employers have largely moved away from traditional pensions and shifted to 401(k) retirement plans. Currently, government employees can decide whether to enroll in the state pension plan or a 401(k)-style plan.
The GOP-run Kentucky state legislature has overridden Democratic Gov. Andy Beshear’s veto of a pension reform bill that will place new teachers in a hybrid pension plan that incorporates aspects of a defined contribution (DC) and a defined benefit (DB) plan.
Under House Bill 258, new teachers are required to contribute more to their retirement plans than current teachers do, and they will have to work for 30 years instead of 27 to earn their maximum benefits. The new rules will become effective at the beginning of 2022.
The bill had been passed by large majority of both chambers of the legislature earlier this year, with the House passing it by a vote of 68 to 28 and the Senate passing it by a count of 63 to 34. Because the state’s Republicans have a supermajority in both the House and Senate, they didn’t have much difficulty in overriding the veto, which was one of 24 vetoes passed down by Beshear, a Democrat, that were overridden in one day.
Senate Bill 84, filed by Sen. Ray Rodrigues, R-Estero, would require new public employees enroll in a 401(k)-type investment plan rather than in the Florida Retirement System (FRS), the nation’s fourth-largest public pension plan that serves about 5.1 million Floridians, including 4.425 million retirees.
According to SB 84’s legislative analysis, the 51-year-old FRS carries $36 billion in “unfunded liabilities,” the gap between assets and obligations, an exposure critics insist put the state at risk.
The bill offers an “investment plan” as an option to more than 644,000 active employees, 432,258 annuity recipients, 15,512 disabled retirees and 33,593 enrolled in the Deferred Retirement Option Program (DROP).
Wharton Business Daily: What are your thoughts on the move by Congress to allow people to be able to dip into their 401(k) accounts? You are not a fan of that idea in general.
OliviaMitchell: That’s true. This got started in March 2020, when the CARES Act was passed by Congress, allowing people who had 401(k) accounts and who were younger than age 59.5 to access up to $100,000 from their retirement accounts without paying the 10% penalty. Congress permitted this in the throes of COVID and then they allowed the income taxes on those withdrawals to be spread over three years unless the money was repaid to the account. That option ended in December 2020.
Congress passed a new bill in December that did not extend penalty-free access to everyone, but it did permit people who experienced federally declared disasters, aside from COVID, to withdraw some of their 401(k) money. So, there are still eligible people who, in 2021, can withdraw up to $100,000 from their retirement accounts without penalties. Again, they can spread it over three years for tax purposes. In general, this is not a good idea.
After years of discussions about the tricky issue of overhauling Florida’s retirement system for government employees, a Senate committee this week approved a proposal that would shut future workers out of a traditional pension plan.
The proposal, sponsored by Senate Governmental Oversight and Accountability Chairman Ray Rodrigues, R-Estero, would require new employees as of July 1, 2022, to enroll in a 401(k)-style “investment” plan. Employees currently are allowed to choose whether to take part in the pension plan or the investment plan.
Rodrigues, whose Republican-controlled committee approved the bill (SB 84) in a party-line vote, said lawmakers have to make “difficult decisions” to maintain the long-term solvency of the pension fund. He pointed, in part, to a $36 billion unfunded actuarial liability, which is essentially a measurement of whether the fund is projected to have enough money to meet its future obligations.
Now, generally speaking, when an employer switches from a traditional pension to a defined contribution plan, this means a significant drop in plan benefits for employees. In Florida, that’s not the case — at least nominally not so: the employer contribution rate is the same for either type of plan, and varies only by employment class. (Of course, this doesn’t take into account any additional contributions needed to remedy funded status.) In addition, regular readers will know that I insist whenever the opportunity arises that state and local employees should participate in Social Security just as much as the rest of us do; as it happens, that is already the case for public employees in Florida. In addition, unlike the 8 year vesting of the traditional pension plan, the employer contributions to the defined contribution plan vest after only a year of service.