1. Retirement Issues for the 21 st Century National Press Foundation Washington, D.C. June 13, 2011 Diane Oakley Executive Director National Institute on Retirement Security The Future of Public Pensions www.nirsonline.org

2. Why Increased Focus on Public Sector & Pensions? Source: New American Foundation, Bureau of Labor Statistics, Westwood Capital Seen inaccurate assertions in outsized growth of public sector employment. Middle class jobs in the private sector are disappearing. The share of middle income jobs in the U.S. fallen from 52% in 1980 to 42% in 2010. Middle income jobs have been replaced by low income jobs, which now make up 41% of total employment.

3. Private Sector: Lower Income Now, Less Retirement Security Later Source: New American Foundation, DOL, PBGC, EBRI Private Sector Workers Participating in Employer Based Retirement Plan by Plan Type, 1979-2008 (all workers) Source: New American Foundation, Bureau of Labor Statistics, Westwood Capital

4. Wall Street Meltdown Dealt Severe Blow to Middle Class Source: New American Foundation, Bureau of Economic Analysis Household net worth declined from $65.7 trillion in the second quarter of 2007 to $56.8 trillion in the fourth quarter of 2010. Wealth recovered $8.1 trillion since the first quarter of 2009, due mostly to recovery of stock prices.

5. Already, Severe Private Sector Shortfall in Retirement Savings The median value of retirement savings for retirees is $45,000 The average retiree has a retirement savings shortfall of $47,732, with larger shortfalls among low-income Americans Many Americans were relying on rising home values to finance their retirement and have under saved.

6. Great Recession Fallout on Middle Class: Home Equity & Wealth Source: New American Foundation, Kennickell (2009) Home equity makes up a greater share of wealth for the middle class than for wealthy families. For families up to 90 th percentile of net worth, home value makes up 50% of worth. However, significant decline since 2007, Case Shiller Home Price Index declined by 30%, could fall another 10-20%. Don’t forget – 23% of all residential mortgages underwater.

7. Public Pensions: Strong Financials for Most Plans Going into Financial Crisis Source: Center for Retirement Research at Boston College (data not provided for 1995, 1997, 1999)

8. Funding Ratio (Percent) Distribution of Funded Ratios for 126 Largest State, Local Pensions, 2010 Vast Majority of Public Plans Well Funded Source: Center for Retirement Research, Boston College

9. Public Pensions Showing Strong Recovery Change in Combined Assets of State & Local Government Pensions: 2003 – 2010 Source: National Association of State Retirement Administrators

10. Years ended as of 12/31/10 Median annualized public pension fund investment returns for periods ended 12/31/10 Strong Investment Returns: Exceed 8% Over Two Decades Source: NASRA based on Callan Associates Data

11. Historical Snapshot: Investment Returns Source: Gabriel, Roeder, Smith & Company

12. Using Theory Rather Than Reality Artificially Inflates Public Pension Costs Risk-Free Rate Leads to Increased Costs Source: Government Finance Review, February 2011

13. Using Theory Rather Than Reality Artificially Creates Surplus Risk-Free Rate Leads to Excess Funding Source: Government Finance Review, February 2011

14. Public Pensions Are Small Portion of State/Local Budgets Source: U.S. Census Bureau Employer (taxpayer) contributions as a percentage of all state and local government spending, FY 08

15. On Average, Public Pension Benefits Modest, With 30% of Workers Not Eligible for Social Security Source: U.S. Census Bureau

16. Employee and Employer Pension Contributions, 1982 to 2009 Public Pensions Typically Are Shared Funding Responsibility Source: U.S. Census Bureau

17. Public Pensions Implementing Changes to Ensure Long-Term Sustainability Source: Government Finance Review, February 2011

18. By itself, freezing plan does nothing to close and funding shortfalls Freezing plan undermines the economics of the plan by starving it of new entrants Because of accounting regs, plan costs can actually increase Undermines retirement readiness DB to DC Switch Not a Viable Solution Source: National Institute on Retirement Security, Look Before You Leap

19. Pensions Make Sense for Public Sector Sector Employers, Taxpayers “State and local governments also have a strong comparative advantage relative to private industry in offering pension benefits. Since many of the most common government jobs— firefighter, police officer, corrections officer, regulatory overseer—have no direct private sector analog, the lifetime-with-one employer career path scorned by many in the private sector makes a lot of sense for government employees.” Eli Lehrer, Heartland Institute, Weekly Standard, March 28, 2011

20. 84% Americans Concerned Current Economic Conditions Hurt Retirement American Retirement Panic Attack Source: National Institute on Retirement Security, Pension and Retirement Security 2011, A Roadmap for Policymakers

21. Private Sector Wants Pensions 81% of Americans Say They Need Pension For Independence, Self-Reliance Source: National Institute on Retirement Security, Pension and Retirement Security 2011, A Roadmap for Policymakers

22. Regulations, Funding Volatility Kill Private Sector Pensions - Not Costs

23. Corporate vs. Public Pension Funding Levels, Costs Comparison of corporate and public pension funding levels, 2000 to 2010 Comparison of change from prior year in corporate and public pension contributions, 1989 to 2009 Regulations, Funding Volatility Kill Private Sector Pensions - Not Costs

24. DB Cost No Longevity Risk Pooling Less Balanced Portfolio Lower Returns/Higher Fees 46% Savings Pensions Most Economically Efficient Retirement Plan: HALF the cost Source: National Institute on Retirement Security, A Better Bang for the Buck

25. The Real Retirement Issue? Underfunded Individual Accounts Source: Michael Kitces, The Nerd’s Eye View in The New York Times

26. Future Outlook? Public pensions will continue to recover. States will continue to implement changes to ensure long-term pension sustainability. State & local government will continue to offer pensions with supplemental DCs. Watch for NIRS forthcoming study on public pension sustainability.

27. Additional Resources American Benefits Council – Lynn Dudley Boston College Center for Retirement Research – Alicia Munnell Chamber of Commerce – Aliya Wong Center on Budget and Policy Priorities – Elizabeth Liz McNichol Center for Economic & Policy Research – Dean Baker Center for State & Local Govt. Excellence – Beth Keller Groom Law Group – Ian Lanoff ERISA Industry Committee – Mark Ugoretz Employee Benefits Research Institute– Dallas Salisbury Government Accountability Office – Frank Todisco Heritage Foundation – David John National Assn. of State Retirement Administrators – Keith Brainard Penn State University – Ron Gebhardtsbauer Segal Company – Cathie Eitelberg University of Massachusetts – Christian Weller Yale University – Jacob Hacker

28. Diane Oakley 202.457.8190 doakley@nirsonline.org www.nirsonline.org