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 Future of Retirement Study Commission - Information Requests

 

Information Requests from Commission Members

The opinions expressed in the readings below are the opinions of their authors and are not necessarily the opinions of State Treasurer Janet Cowell or the NC Department of State Treasurer.

 

What unique issues do women face in preparing for retirement?

GAO report on challenges to women in ensuring financial security in retirement (Full text of report is available using link at bottom left side of page).

Earnings and Women's Retirement Security
Both the executive summary and full paper are available.

 

How has turnover changed over time?

For the broader national population, see Decline of Career Employment and EBRI Report on Employee Tenure. For NC public employees, this question can be answered by comparing our turnover experience from the late 1970s with our turnover experience from this decade, shown in this worksheet. The worksheet shows the probability of leaving the state/local workforce from one year to the next. The fact that it has declined (particularly at younger ages) indicates that tenure is longer, in line with the EBRI report. Note that even if just 6% of the workforce leaves every year, there is only a (1 - 0.06)^30 = 16% or 1 in 6 chance that a new hire will reach his or her 30th anniversary.

Prevalence of DB and DC plans in public and private sectors

This document highlights the large NC private employers that provide DB plans to their current employees. This report, from the National Conference of State Legislatures, provides some information on DC plans in the public sector.

 

Which local employers provide 401(k) employer contributions and retiree medical benefits?

The 401(k) information is in this worksheet for those that contribute to the state 401(k) as opposed to their own plan. Both 401(k) and retiree medical benefits for counties are covered in the UNC School of Government salary survey. Note that all law enforcement officers, state and local, receive a 5% employer contribution to the 401(k).

 

How have the ad-hoc cost-of-living adjustments (COLAs) provided in the state and local retirement systems compared to inflation in recent decades?

This table and chart show this comparison.

 

What retirement benefits are currently available to the state/local workforce?

This document (3 pages; updated February 5) should help answer this question.

 

How have state and local governments modified their human resource practices in response to the recession?

See this survey from the Center for State and Local Government Excellence.

 

Do you have information on work and disability among older Americans?

Census Bureau Report: 65+ in the United States particularly pgs. 58-64 on disability and on pgs. 83-94 on work.

Census Bureau Report: Americans with Disabilities

 

How common are automatic cost-of-living adjustments (COLAs) in other retirement systems?

As mentioned in the meeting, automatic COLAs are extremely rare in the private sector, although a few employers still do occasional ad-hoc COLAs. For public sector employers, see p. 32 of this survey from the Wisconsin Legislative Council. Some of the other tables in this report might also be of interest.

How do pay and benefits compare between the public and private sectors?

The Center for Economic and Policy Research has released a new report in May entitled, The Wage Penalty for State and Local Government Employees. This report deals with the differences in pay between public and private sector employees; taking into consideration age, experience and education.

This new report, commissioned by the National Institute on Retirement Security and the Center for State and Local Government Excellence, was released on April 28, 2010.

For general summary information, see this report from the US Bureau of Labor Statistics. However, note that this data is not adjusted for a number of differences between the public and private sector workforces, including differences in education, type of job, job tenure, age, and others. It is also interesting to note the difference between small and large private sector employers (see Table 8). Many governments, particularly states, are obviously large employers and large private employer pay and benefits are much closer to government pay and benefits.

Much of the research comparing public and private compensation on a more apples-to-apples basis was done many years ago. This US Bureau of Labor Statistics article is a good summary of that older research and some of its findings probably still hold today.

In addition, here are some other articles that may be useful:

  • Belman, D., and Heywood, J.S. 2004. Public sector wage comparability: the role of earnings dispersion. Public Finance Review, 32, 567-87. This article explores variation in the public-private wage differential, i.e. even if pay was the same on average, some people might be overpaid and others underpaid
  • Lewis, G.B., and Galloway, C.S. 2009. “A National Analysis of Public/Private Wage Differentials at the State and Local Levels by Race and Gender.” Paper presented at the annual meeting of the Midwest Political Science Association, 67th Annual National Conference, The Palmer House Hilton, Chicago, IL.
  • Lee, S. 2004. A Reexamination of public-sector wage differentials in the United States: evidence from the NLSY with Geocode. Industrial Relations, 43(2), 448-472.

 

How many state employees are due to retire in the next few years?
Contrary to popular belief, the state does not face an impending wave of baby boomer retirements.  The percentage who will become eligible in future years increases in a relatively steady manner, as shown in this chart. The chart shows the cumulative percent of the current workforce that will be eligible for unreduced retirement benefits within the number of years shown. Since we currently offer unreduced benefits at 30 years of service, 100% are obviously eligible within 30 years. It is then not surprising that roughly half (15/30ths) are eligible within 15 years, a third (10/30ths) within 10 years, etc.

The chart just shows headcounts. It does not score people based on their importance to the organization. Within a given department, there may be a small number of people who are critical to the organization who are eligible for unreduced retirement within the next few years. However, adapting to their potential departure requires training and succession planning, not getting lots of new bodies in the door. 

We have not shown the distribution for local employees, but it should be very similar.

 

Please provide some demographics characteristics for people retiring in recent years.

As these charts show, higher paid workers tend to have more service at retirement than lower paid workers. This is in direct contradiction of the expectations expressed during meeting two. In that meeting, it was noted that public sector pays are more compressed, which means that pays for positions at the lower end of the scale are higher in the public than in the private sector (see question above about public vs. private pay).

It was therefore suggested that lower-paid workers might hang on to a public sector job for the rest of their careers once they were able to obtain one, while the opposite would be true of higher-paid workers. In fact, the data shows the exact opposite. This can also be understood by looking back at the demographic charts in the meeting one readings and focusing on two types of employees: Professionals/Managers and Service Workers and Laborers (state) or Unskilled Labor (local). Professionals/Managers tend to have more service and be higher paid. The Service Workers and Unskilled Labor groups tend to be much lower paid and have lower service. Since all remaining groups (teachers, administrative, etc.) are either small or have average service, these two groups explain most of the service-pay relationship.

This table shows 2009 averages, including age, service, and AFC for new retirees of the Teachers' and State Employees' Retirement System.

How well would TSERS be funded if the State had always contributed 6%?  Alternatively, what constant contribution rate would have been equivalent to the actual, variable contribution rate over some period of time?

We are unable to answer the first question because we would have to make certain assumptions about other ripple effects of a constant contribution. In particular, what COLAs and benefit increases would have been granted if the contribution had been 6%?  As a rough answer to the second question, the average employer contribution rate over the last 30 years has been 6.77% of pay. The 30-year history is shown on this chart. It would require some effort to precisely calculate the constant contribution rate that would produce the same accumulated value of contributions, but it would probably be a little higher than 6.77% since the early contributions would be weighted more in this calculation.

 

How does funded status differ by the type of benefit design?

As Chairman Clark mentioned, a direct comparison is probably misleading because the benefits may have changed over time. For example, Alaska has a defined contribution plan for all new hires. The defined contribution plan is, by definition, 100% funded, but the legacy defined benefit plan is underfunded.  However, underfunding alone does not lead to DC conversions, as seen in the case of the overfunded plan in Florida. For more information on what does lead to DC conversions, see the next question.

If you wish to compare funded status and benefit design in specific states, the benefit information is available in the Wisconsin Legislative Council report and the funded status information is available in the Pew study mentioned below. For more information on why funded status varies from state to state, see this report from the Center for Retirement Research at Boston College.

 

What has driven certain states to switch to defined contribution or hybrid plans?

The Center for Retirement Research at Boston College has done this study.

 

Please provide a link to the recent report of funded status of state pensions by the Pew Center on the States.

The Trillion Dollar Gap: Pew Pensions and Retiree Health Care Report Tackles Underfunded State Retirement Systems and the Road to Reform 

 

Please provide a link to any retirement resources from the National Education Association.

The NEA’s main page with information on retirement benefits is here. The NEA also recommended research from the National Institute on Retirement Security, particularly their education page, which has a Pension Primer.

 

Please provide links to recent reports on state pension funding from the Manhattan Institute and the Heartland Institute.

 

For those who have a choice between the Optional Retirement Program (ORP) and the Teachers' and State Employees' Retirement System (TSERS), how many choose each program?

This spreadsheet shows the percent electing the ORP vs. TSERS at NCSU and UNC-CH in recent years.  We do not have data from the smaller campuses, but generally believe that more would elect TSERS at the smaller campuses due to less anticipated movement during their careers.

 

For those who choose the Optional Retirement Program (ORP), how many choose to turn some portion of their balance into an annuity (monthly income for life)?

Using data for their participants throughout the whole country, TIAA-CREF has found that approximately 30% of those who begin an income stream will choose to annuitize some portion of their assets.  Approximately 17% of those beginning an income stream choose to fully annuitize.  Those partially annuitizing often use other income options offered by TIAA-CREF to complement their lifetime income choice.  The percent annuitizing in the UNC ORP may be somewhat higher because participants must annuitize to qualify for retiree medical coverage.

 

What retiree medical benefits are offered to public employees in other states?

This document provides a summary of benefits in each of the states.This document has some information on the level on unfunded liability in different states and the reasons for the differences, for example Table 3.

 

Which states offer some of their employees only a defined contribution (DC) plan?

As noted in this previously cited document, Alaska, Michigan, and the District of Columbia are the only ones.  West Virginia offered only a DC plan to teachers from 1991 to 2005, when they switched back to a defined benefit plan.  Nebraska offered only a DC plan to state employees from 1967 to 2002, when they switched to a cash balance plan.

 

Please provide information on methods for keeping employees past 30 years of service.

We have prepared this summary of common approaches.

 

Please provide information on Deferred Retirement Option Plans (DROPs)

We have prepared this summary.

 

Please provide information on salaries, employee and employer contributions, turnover rates, and replacement rates for 10 peer states.

See this table.

 

Please provide a link to the recent NY Times article on pension changes in Colorado and the impact of pensions on the general public.

http://www.nytimes.com/2010/08/07/your-money/07money.html


 

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Notes
  
1/25/2010
  
2/22/2010
  
3/22/2010
  
4/19/2010
  
5/10/2010
  
6/14/2010
  
7/12/2010
  
8/23/2010
  
9/20/2010
  
10/18/2010
  
11/16/2010