The STFA firmly believes in retirement security not only for New Jersey State Troopers, but all Americans. The STFA also believes this is best accomplished with defined benefit (DB) plans as opposed to defined contribution (DC) plans. A defined benefit plan allows resources and investments to be pooled; this allows experts to invest large sums of money to maximize returns and the ability to negotiate lower service fees due to the large amounts of money involved. Conversely, defined contribution plans are not pooled; each individual investor relies on his or her best investment guess, generally can’t negotiate a more favorable fee schedule, and has a smaller account balance.
Traditionally, retirement security was viewed as a "three-legged stool" which consisted of social security, a pension, and personal savings. Troopers, like many uniformed public safety personnel, do not contribute to social security; so the pension
Many pension systems across the country have been negatively affected by several factors including the recession of 2008, poor management, multiple missed employer contributions, poor investment choices, and increases to benefits while decreasing employer and/or employee contributions. Although the SPRS has been affected by some of these factors, the only significant factor affecting the SPRS is missed employer contributions in prior years.
The STFA believes the State Police Retirement System is a healthy, effective, and efficient retirement system. The SPRS has historically adhered to fiscally sound policy (discussed in the "Overview" section). The only remaining hurdle preventing the SPRS from reaching an optimal funding level is that the employer has yet to pay for contributions not made in the past.
The State Police Retirement System (SPRS) is one of seven active retirement systems in the State of New Jersey. It is a defined benefit (DB) plan that is only open to New Jersey State Troopers. It is one of the healthiest plans in New Jersey due to the historical structure of the plan as well as the implementation of several recent reforms including:
The only factor negatively affecting the SPRS are missed employer contributions over a period of approximately 20 years. An orderly repayment of this amount is necessary to improve the health of the SPRS and move it closer to full-funding status. The 2016 SPRS actuarial report indicates this amount is approximately $900M to $1.1B.
The SPRS Pension Board is tasked with approving retirement and disability applications. It is not responsible for investing fund assets. The State Investment Council , in conjunction with the Division of Pensions and Benefits, is tasked with creating and executing investment policy. The investment policy is based on a "one size fits all" approach for all the New Jersey systems as opposed to a separate policy for each system based upon the needs and health of the individual systems.
All definitions are from investopedia.com unless therwise noted.
The Ontario Teachers' Pension Plan, also known as "Teachers'" or "OTPP" is a recognized leader in the pension sector. The fund manages $175 billion in assets, 80% of which is done "in-house". The plan is currently funded at 105%. The purpose of the OTPP, which is governed by a board representing both management and labor, is to ensure the retirement security of the fund members by making sound investment and management decisions. From the OTTP wesbite: "Ontario Teachers' unique governance structure is a key reason for our success. At the heart of our model is a strong, independent Board that ensures Ontario Teachers' is run like a business. Equally important is our joint sponsorship arrangement that gives members and the government shared responsibility for funding the pension plan."
Below are links to informative videos found on the OTPP website.
CEO Ron Mock on CNBC discussing OTPP and the future of pension plans (May 3, 2017)
OTPP documentary produced in 2013 entitled "Pension Plan Evolution" which outlines how Teachers' is adapting to financial realities.
AFSCME (American Federation of State County Municipal Employees, AFL-CIO) AFSCME produced a "tongue-in-cheek" animated video highlighting the anti-pension efforts of former Enron executive John Arnold.
NCPERS (National Conference of Public Employee Retirement Systems)
From NCPERS website: "(NCPERS) was established in 1941 and has become a leading advocate for public pensions. NCPERS produces a wide array of publications, seminars, and other resources in support of public pensions and their members."
In our opinion, NCPERS supports the DB plan concept and offers a variety of resources and studies in support of DB plans.
May 2017 report entitled "Economic Loss: The Hidden Cost of Prevailing Pension Reforms"
April 2015 report entitled "What is the Cost of Transitioning from a DB Plan to a DC Plan"
National Institute on Retirement Security:
(From NIRS website) "(NIRS is) a non-profit research and education organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy as a whole."
Feburary 2015, "Case Studies of State Pension Plans that switched to Defined Contribution Plans".
"Colorado Public Employees' Retirement Association (PERA) provides retirement and other benefits to the employees of more than 500 government agencies and public entities in the state of Colorado. Established by state law in 1931, PERA operates by authority of the Colorado General Assembly and is administered under Title 24, Article 51 of the Colorado Revised Statutes. In accordance with its duty to administer PERA, the Board of Trustees has the authority to adopt and revise Rules in accordance with state statutes."
The State of Colorado, through legislation (Senate Bill 14-214) commissioned Gabriel Roeder Smith & Company (GRS) to analyze the Colorado pension to determine if a DC model was better than a DB model. The analysis clearly showed a DB plan is the most cost effective, beneficial program to both the employer and the State.
"Comprehensive Study Comparing the Cost and Effectiveness to Alternative Plan Designs Authored by Senate Bill 14-214".
PERA also published a one page, informative, easy to understand graphical summary of the result.
American Association of Retired Persons (AARP):
(From AARP website): "AARP is a nonprofit, nonpartisan, social welfare organization with a membership of nearly 38 million that helps people turn their goals and dreams into real possibilities, strengthens communities and fights for the issues that matter most to families — such as health care, employment and income security, and protection from financial abuse."
AARP created a short report geared for policy makers explaining the positives of a DB plan for workers.
American Legislative Exchange Council:
(From the ALEC website) "The American Legislative Exchange Council is America’s largest nonpartisan, voluntary membership organization of state legislators dedicated to the principles of limited government, free markets and federalism. Comprised of nearly one-quarter of the country’s state legislators and stakeholders from across the policy spectrum, ALEC members represent more than 60 million Americans and provide jobs to more than 30 million people in the United States."
In our opinion, ALEC is generally viewed as pro-DC plan and anti-DB plan, however the STFA believes it is important to seek information from a variety of sources; including those which may be opposed to the defined benefit concept. Some of the positions ALEC supports, such as de-politicization of investment decisions, structural and policy changes, and analysis of some current pension practices are helpful for achieving a balanced, thorough analysis of the pension issue.
ALEC report "Unaccountable and Unaffordable"
This report focuses upon how the assumed rate of return established by a plan sponsor can impact the calculation of an unfunded liability. The report argues the use of an unrealistically high assumed rate of return allows sponsors to pay a lower ARC in order to lower pension costs. However, the report argues that the riskless rate (2.43%) should be used to calculate the ARC. Obviously such a low rate will greatly increase the unfunded liability. The STFA believes that just as using an unrealistically high assumed rate of return distorts analysis of a pension system , using a very low rate has a similar affect.
"Keeping the Promise: Getting Politics Out of Pensions<"/a> Missouri LAGERS: Los Angeles Times:
While the STFA agrees with some of the proposals within the report, we DO NOT agree with other parts of the report; specifically that a DC plan is a better deal for employees and taxpayers, the assertion that an assumed rate of return of 7% is unreasonable, and the reliance on the riskless rate to assess a plan’s health.
(From the LAGERS website) "LAGERS is the largest retirement system in Missouri that serves local government employees. We exist to serve our members. LAGERS membership is made up of thousands of fire fighters, police officers, utilities workers, EMTs, public works personnel, and librarians, to name a few."
In our opinion, this LAGERS webpage provides a great overview of pension plan types, how a pension plan works, terms, and current topics in the pension debate.
Public Pension Shocker: "Shutting a Pension Plan Actually Costs taxpayers Money", Aug 21, 2015
Los Angeles Times:
Retirement Heist: How Companies Plunder and Profit from the Nest Eggs of American Workers. Ellen E. Schultz. Portfolio/Penguin Publishers. 2012. ISBN 978-1-59184-565-2
From the cover:" Hundreds of companies have slashed pensions and health coverage for millions of retirees, claiming that a "perfect storm" of stock market losses, aging workers, and spiraling costs have forced them to take drastic measures.
But this so-called retirement crisis is no accident. Ellen E. Schultz, an award-winning investigative reporter formerly of The Wall Street Journal, reveals how large employers and the retirement industry have all played a huge and hidden role in the death spiral of American pensions and benefits.
A little over a decade ago, pension plans were fat. But companies used slick accounting and dubious loopholes to turn their pension plans into piggy banks, tax shelters, and profit centers. As pensions weakened, companies slashed benefits for workers while doling out gargantuan pensions to their top executives.
Drawing on original analysis of company data, government filings, and confidential memos, Schultz uncovers decades of widespread deception during which employers exaggerated their retiree burdens while tricking employees, misleading shareholders, and lobbying for taxpayer handouts."
The Third Rail. Jim Leech and Jacquie McNish. McClelland & Stewart Publishing. 2013. ISBN: 978-0-7710-4663-6
From the cover:" Over the next 20 years more than 7 million Canadian workers will retire. Baby boomers, the 45- to 65-year-olds who account for 42% of the country's workforce, will join the largest job exodus in Canadian history, moving to the promised land of retirement. Unless our crumbling pension system is reformed, many of these retirees will find this dreamland a bewildering and disappointing mirage.
In the early 1980s, consumers were setting aside 20% of their disposable incomes to their retirement plans; today the savings rate is a threadbare 2.5%. Retirement savings plans meant to build Canadians' personal war chests for their final years have failed to live up to their cheery promises of early retirement "freedom" - market returns are low, and financial fees are climbing. Moreover, retirement plans are now being compromised by high pension obligations and a shrinking workforce.
Canada has the capacity to diffuse this ticking pension time bomb with some hard choices, posits Leech. It's time for businesses, governments, unions, and employees to face these options and fix - and ultimately save - our pensions system, taking examples from Holland, New Brunswick, and Rhode Island - places in which new laws have been adopted to repair the pensions programs."