In 2010:CA, CO, IA, MN, MS, VT and WY increased contribution requirements for active members.LA, MO and VA increased or imposed new contribution requirements on future members.UT will require contributions from new members in certain future circumstancesPA offered new members a choice of higher contributions to retain the present benefit package or the existing level of contributions with a lower benefit package.In 2011, Louisiana increased contribution requirements for current members of its statewide firefighters' and municipal police plans. The map reflects the 2011 legislation, not the 2010 legislation mentioned above.
"Offset" refers to provisions that employer contributions will be at least temporarily reduced by an amount equal to or similar to the increase in the required employee contribution. In New Mexico and Colorado (for example) state agency budgets have been reduced to produce savings to the state General Funds because of higher state employee contributions. In Wisconsin and New Hampshire (for example), the state will reduce aid to local governments to reflect lower local government employer contributions that offset higher local government employee contributions. The 2011 Louisiana legislation is intended to slow the increase in employer contributions from previous law, not to reduce contributions from the existing level, and will affect municipal employers, not the state government.In 2010, only Colorado offset higher employee contributions with lower employer contributions.Increases affect at least one state-wide plan for public employees or teachers, or both.
General trends have been to move the age of normal retirement to or closer to 65, and to provide higher minimum ages or lengthier service requirements for the use of the Rule of 80 or similar Rules. Montana allowed normal retirement at age 70 with no service requirement. Such changes usually apply to general state and local government employees and teachers. A few states (notably, Florida and Maryland) increased age and service requirements for normal retirement for public safety or "special risk" classes of employees. 2010:Affected general employees and teachers (but not public safety members)Arizona: For those hired after 7/1/11, normal retirement at Rule of 85 (old law, Rule of 80)CALIFORNIA: For new members, normal retirement age increases from 55 years of age to 60, except that public safety members may take normal retirement at 55 with a 2% multiplier, or at 60 with a 2.5% multiplier. Colorado: Current members with less than 5 years of service credit, Rule of 85 (eliminates other options)Those hired from 1/1/11 to 1/1/17, Rule of 88 with a minimum age of 58.Those hired on 1/1/17 and after, Rule of 90 with a minimum age of 60Illinois: Those hired on or after 1/1/11, age 67 with 10 years of service (replaces various provisions allowing retirement at ages 50, 55 and 60).MICHIGAN: For DB portion of teachers' hybrid plan, minimum age of 60 (current law depending on tier is age 55 or after 30 years service).MISSISSIPPI: For those who enter the public employee system after 7/1/11, 33 years of service (current law: 30).MISSOURI: For those hired after 1/1/11, 67 with 10 years of service or the Rule of 90 with a minimum age of 55 (previously, 62 with 5 years of service or the Rule of 80 with a minimum age of 48).PENNSYLVANIA: For new members of PSERS, increases retirement age from 62/1 to 65/3. For new members of SERS, the retirement age increases by 5 years which for most members will mean a retirement age of 65 rather than 60. Alternatively, the Rule of 92 with at least 35 years of service, applicable to both plans.UTAH: For DB portion of hybrid plan, 60/20 option remains; retirement at any age increased from 30 years of service to 35 years of service.VERMONT: Current members more than 5 years from retirement and future members, age 65 or the Rule of 90 (current law, 62 or any age with 30 years of service).VIRGINIA: Those hired after July 1, 2010, Rule of 90 instead of the Rule of 80, or normal Social Security retirement age with 5 years of service.
In addition to the states shown in the map, in 2011 Oklahoma (which has only ad hoc COLAs) enacted legislation that requires prefunding for any COLAs approved in the future. Arizona: 2011 legislation affects elected officials and public safety and corrections officers. It pins future cost-of-living increases to return of investments and the level of actuarial funding of the plan in question.Florida: Legislation eliminates COLAS for service earned on or after July 1, 2011, and allows for the renewal of the current COLA formula in 2016, subject to the availability of funding and legislative action at that time.Kansas: 2011 legislation would allow some current employees to forego post-retirement cost-of-living adjustments in exchange for continuation of their current employee contribution rate. Maine: COLAs have been cancelled for the next three years and after that will be resumed tied to the CPI, capped at 3 percent.Rhode Island: 2011. Suspends COLAs until 80 percent funding is reached, but allows COLAs every five years until that level is reached.Washington: Legislation eliminates COLAs for public employees' tier 1 and teachers' tier 1 above the amount in effect in July 2010 (those plans were closed to new enrollment in 1977).
1. State Pension Legislation 2010 -2011 December 2011 Ron Snell National Conference of State Legislatures
2. My Assignment1. Overview of the pension and benefit changes states have undertaken to reduce costs;2. Options available for altering the benefits of current employees and retirees; and3. Actions states should consider or reject when contemplating changes in pension benefits.
3. The Issue In 2009, according to the Pew Center on the States, state unfunded liabilities for retirement plans were $660 billion. That is the value of all commitments for which systems lack funding, valued according to the systems assumptions on future investment returns. Less optimistic assumptions make the unfunded liability several times that amount.
4. Major Pensions Legislation in 2010-2011: All Topics41 States Represented30 states acted in 2011.
5. Increases in Employee Contributions, 2010 and 201125 states represented Future Members Only (6 states) At Least Some Current Members (19 states)
6. Offsets to Increases in Employee Contributions, 2011 Offset With Lower Employer Contributions (10) No Offset (7)
7. Higher Age and Service Requirements for Normal Retirement, for New Members, 2010 and 2011 4 426 States Represented
8. Reduced Post-Retirement Benefit Increases Enacted in 2010 and 201118 StatesRepresented Future hires only (6 states) At least some active employees (5) People already retired and active employees (7)
9. Additional State Issues in 2010 and 2011 Longer vesting period for new members -- 13 states. Longer period for calculating final average compensation (meaning a lower base for a pension in most cases) --15 states. Reduced benefit for early retirement -- 17 states. For current employees in 5 states. Greater restrictions on retirees return to covered service -- all retirees -- 12 states.
10. Trends in Pensions Policy in 2010 and 2011 A trend to revise, not replace, traditional DB plans. In 2010, Utah closed its DB plan for all state and local employees. As of July 1, 2011, Utah offers new employees the choice of a defined contribution plan or a combined plan that includes a DB plan and a mandatory 401(k). As of July 1, 2010, Michigan replaced its School Employees DB plan with a combined plan. Indiana created a voluntary alternative DC plan in 2011.
11. Trends in Pensions Policy in 2010 and 2011 Rhode Island in 2011 replaced its defined benefit plan with a hybrid plan that, beginning in early 2012, will include all current plan members except public safety members. This is the first instance in the 50 states of including active members of a plan in a basic plan redesign.
12. Trends in DB Plans in 2010 and 2011 States are shifting more of the eventual cost of retirement to members. Higher contributions; Longer service requirements; Higher ages for normal retirement; and Lower post-retirement benefit adjustments. More restrictions on retirement before normal age and on retired people returning to covered service (often called "double-dipping).
13. Contribution Requirements in 2011 Most states that increased employee contribution requirements in 2011 offset them with lower employer contributions, at least temporarily. This is a trend toward equalizing the employer and employee contribution rates. Also helps balance to highly-stressed state budgets (and local government budgets in some cases). An employee dollar is not worth as much as an employer dollar, and the practices does not leave pension funds harmless.
14. Sources and Contact Information This report is based on NCSLs annual reports on state pensions and retirement legislation and The Widening Gap (Pew Center on the States, 2011). This report includes enactments through November 2011. The 2010 NCSL legislative report is available at http://www.ncsl.org/default.aspx?tabid=20836 The 2011 legislative report through September 30 is available at http://www.ncsl.org/default.aspx?tabid=22763 For further information: Ron Snell -- firstname.lastname@example.org 303-856-1534