Trends in Pension Reforms: 2009-2013


Summary:

The pension reforms states pursue generally depend on the circumstances they face, their finances, and workforce but there are some identifiable common trends.

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Publication date:
7/13
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Articles

The pension reforms states pursue generally depend on the circumstances they face, their finances, and workforce. There are some identifiable common trends, however, among the pension reforms passed between 2009 and 2013.

Changing eligibility requirements

One common characteristic of pension reform is increasing eligibility requirements employees must meet to draw a full pension. Before 2009, public employees in many states could retire with full benefits at a younger age than many current and future employees will. Employees in some states could even take advantage of provisions that allowed for early retirement with slight reductions in their monthly benefit amount.

The National Conference of State Legislatures (NCSL) tracks state pension reforms. They found that in 2009, five states passed legislation to increase the age at which some major employee group(s) would be eligible to retire. In 2010, 11 states passed similar legislation, as did 17 in 2011.

Increasing employee contributions

Most state pensions are financed with contributions from both employees and employers, which are pooled and invested to grow the fund. Most contribution rates are variable, with some allowance for adjustment in either direction should plan finances require it.

Another basic characteristic of recent state pension reforms is the requirement that employees contribute more toward the funding of their pension benefits. NCSL found that between 2009 and 2011, 23 states passed laws requiring greater contributions from at least some groups of current employees. When new employees are factored in, the number of states passing contribution jumps to 30 over the same period.

Each state pension plan and fiscal situation is unique, but as we approach the fifth year of consistent pension reforms,a few trends are emerging. Increased eligibility requirements and contributions are becoming more and more common, not only for new hires but for current employees as well.