“Employee Contributions to Public Pension Plans,” released by the National Association of State Retirement Administrators (NASRA), shows that states such as New Mexico and Wyoming have increased employee contributions for both current and future employees. In states such as Virginia and Wisconsin, new and existing employees are now required to pay contributions that were previously paid by their employers, while they get a salary bump instead.
The NASRA brief also finds that a growing number of states are exposing employee contributions to risk, in some cases by requiring hybrid or 401(k)-type retirement plans as a larger component of the cost of the employee’s benefit. For example, Kansas will be starting a new cash balance plan in 2015. In addition, Tennessee created a combination defined benefit/defined contribution plan in 2013. Both the Kansas and Tennessee plans will apply to newly hired employees as part of an effort to transfer risk from the employer to employees. Georgia, Nebraska, Oregon and Texas also have hybrid plans that employees participate in.
Factors other than employee contributions still make up a good portion of the revenues for public pensions, according to the NASRA brief. Between 1982 and 2011, investment returns made up $3.2 trillion (61%) of revenues, employer contributions made up $1.4 trillion (26%) and employee contributions just $662 billion (13%).
Related material from the California Public Employees’ Retirement System (CalPERS) seems to corroborate the importance of investment returns with regard to revenues for public pensions. For every dollar spent on public pensions in California, 65 cents came from CalPERS investment earnings, 22 cents came from employers and 13 cents came from employees.
According to an announcement from CalPERS, public employees who are CalPERS members contribute a percentage of their paychecks toward their pensions. “Through collective bargaining agreements negotiated in recent years, state employees pay more toward their pensions—some up to 11.5% of each monthly paycheck. This has saved California taxpayers an estimated $400 million per year.”
A copy of the NASRA brief can be downloaded here.
« How Far Along Are Sponsors with Knowing Plan Fees?