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Study Compares Features Of 85 Public Employer Retirement Plans

From Spencer's Benefits Reports: The Retirement Research Committee of the state of Wisconsin has released its most recent biennial study of 85 large public employer retirement systems throughout the country. At least one statewide public retirement system in every state is included in the study. The comparison includes requirements for normal and early retirement, vesting, employee and employer contributions, cost-of-living adjustments and ad hoc postretirement adjustments, and benefit formulas.

The plans in the 2006 study cover nearly 12.1 million active employees and more than 5.6 million retirees, for a total of more than 17.7 million participants. This total is 4% greater than the 17 million participants in the 2004 report. The number of active participants grew by 2.6% between 2004 and 2006, while the number of retirees grew by 7.5%.

According to the report, the average ratio of active employees to retirees has declined progressively over prior years. For 2006, the average ratio was 2.14, while the corresponding figures for the 2004, 2002, 2000, and 1996 reports were 2.24, 2.38, 2.52, and 2.89, respectively. Forty-three of the systems had an active employee to retiree ratio of less than 2 (up from 17 and 8 systems in 2000 and 1996, respectively). Social Security coverage was provided by 68 of the plans, the same figure as in 2004 and 2002.

All except ten plans permitted early retirement, commonly at age 55 or 50, but subject to an actuarial discount. The most commonly used annual actuarial discounts range from 3% to 6%, or 6% or more.

The 2006 report indicates a marked slowing of the trend noted in previous reports to permit retirement at earlier ages. Between the 2000 report and the 2004 report, nine plans reduced their normal retirement provisions by reducing the minimum age or the number of years of service required, or both. However, between the 2004 and the 2006 reports, only two plans did so. In addition, between the 2000 report and the 2004 report, ten plans reduced their early retirement provisions by reducing the minimum age or the number of years of service required, or both. Between the 2004 and 2006 reports, only two plans did so.

Vesting, Employee Contributions

The study notes that the trend in public employee pension plan vesting is toward vesting periods of five years or less than five years. Only 21 of the 85 plans covered in the 2006 report had vesting requirements that were greater than five years.

Employee contribution rates were increased in 20 plans between the 2004 report and the 2006 report. Employer contribution rates fluctuated considerably between the 2004 report and the 2006 report; employer contribution rates increased for 44 plans and decreased for 11 plans between 2004 and 2006.

The study goes on to conclude, “Funding ratios of more than 100% have decreased substantially since the 2000 report, reflecting the general decline in earnings that occurred during the period. Thirty-three plans had funding ratios in excess of 100% in 2000, but only seven plans had funding ratios in excess of 100% in 2006. However, 45% of the plans studied had funding ratios of 90% or more in 2006. The average funding ratio in 2006 was 82%.”

The study includes a number of tables that break down system by system the various types of information provided. For further information on the study, 2006 Comparative Study of Major Public Employee Retirement Systems, visit http://www.legis.state.wi.us/lc.

 

For more information on this and related topics, consult the CCH Pension Plan Guide, CCH Employee Benefits Management, and Spencer's Benefits Reports.

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