Contribution Requirements. Callan expects that higher discount rates and longer periods for shortfall amortization probably will reduce pension plan sponsors’ contribution requirements. Further, they expect that effect to be greatest for plans with smaller normal costs and/or larger funding shortfalls. Callan continues that if smoothing is ever fully phased out, they anticipate contribution requirements would increase as discount rates “finally decline from historical highs to match market conditions,” but they also add that the longer amortization period “does provide a permanent reduction in annual cash requirements.”
The changes to the minimum funding requirements, Cheiron says, will result in lower minimum funding requirements. They will not affect segment rates used for other purposes such as calculation of lump sum benefits and the maximum deductible limit.
2021 Levels. For purposes of the WEP [windfall elimination provision], the amount of substantial earnings in covered employment or self-employment needed for a year of coverage (YOC) is adjusted annually by the growth in average earnings in the economy, provided a cost-of-living adjustment is payable. In 2021, the amount of substantial earnings in covered employment or self-employment needed for a YOC is $26,550.
For people with 20 or fewer YOCs who become eligible for benefits in 2021, the WEP reduces the first factor from 90% to 40%, resulting in a maximum reduction of $498 (90% of $996 minus 40% of $996). For each year of substantial earnings in covered employment or self-employment in excess of 20 years, the first factor increases by 5%. For example, the first factor is 45% for those with 21 YOCs. The WEP factor reaches 90% for those with 30 or more YOCs and at that point is phased out.
If the recommendations of the Wisconsin Retirement Security Task Force are followed, the Dairy State could join others that have implemented a state-run plan to provide coverage for workers whose employers do not offer a retirement plan.
The task force, headed by Wisconsin State Treasurer Sarah Godlewski, issued its report on Feb. 10. The task force makes a variety of recommendations, including establishing a state-run program dubbed “WisconsinSaves.” Gov. Tony Evers (D) had signed Executive Order 45 on Sept. 16, 2019, creating the task force to address retirement security in the state.
“Wisconsin is in trouble when it comes to retirement security,” says the report, adding that “even before the COVID-19 pandemic, our retirement system was not working for a significant number of Wisconsin workers.” It notes that in 1983, traditional pension plans covered 62% of employees in Wisconsin, but that by 2016, that had shrunk to 17% of them. In addition, the task force says, AARP found that: