Some States addressing volatility in public pension funds

Stock market volatility has dragged down the performance of some pension plans this year, although LASERS has been the exception.

Some states are raising the amount that employers and employees contribute to traditional pensions, which guarantee a set monthly payment — based on employees' salary and job tenure — in retirement. Others are freezing benefits or scaling back cost-of-living adjustments.

How states are shoring up plans:
· Wisconsin recently notified participants in its state and local employees' plan — which combines features of a traditional pension and a 401(k) — that it may have to reduce monthly payments for the first time ever if stock market losses continue.
· The Arizona State Retirement System will likely raise contributions for employees and employers next year because of poor investment performance in the fiscal year ended June 30, says David Cannella, a spokesman for the system.
· The Iowa Public Employees' Retirement System has boosted its cash position to $200 million from $25 million by holding onto employer contributions and cash from maturing bonds. The cash cushion means the pension fund won't be forced to sell assets in a distressed market, CEO Donna Mueller says.

Public funds calm in face of downturn

The public pension fund industry has urged calm despite being in the middle of one of the worst economic downturns in history and facing mounting losses by the day.

Alicia Munnell, director of the Center for Retirement Research at Boston College and a former member of the president’s Council of Economic Advisers from 1995-97, said on a long term basis, the outlook was less dire than many had made out.

She concluded: “This is a once in a lifetime dramatic period of turmoil but there is no need to panic yet and pension funds are largely well funded and are long term in their vision.

“A year from now asset valuations should be higher [and] only if the situation is prolonged will we really have to worry. Many believe that public pension funds especially are in trouble but that is false. The public sector, where most of the largest pension funds reside, will not need cash flow for payments that may be called upon in the private sector.”

Retirement Officials says outlook still positive despite market turmoil

State retirement system officials say the long-term outlook is still good, despite the crisis on Wall Street that has reduced the values of state employee retirement investments.

Three of the four retirement systems for state employees report that investment losses and debt payments have caused the average value of their assets to decline.

And one — Louisiana State Police Retirement System — is projecting employers will have to increase their contributions next year to keep the system financially sound.

But retirement system officials, actuaries and state legislators say the market should rebound. State employees, their families and other members of the retirement systems should not worry about their benefits, the officials said. Benefits for retired state government workers are guaranteed by state law.

The Louisiana State Employees’ Retirement System, called LASERS, was able to meet its 2008 target rate of return of 8.25 percent. The other three systems were not.

“We never feel directly the very highs and very lows of what can be a rollercoaster of a market,” said Cindy Rougeou, LASERS’ director.

State Rep. J. Rogers Pope, R-Denham Springs, said he is optimistic and patient. Pope was one of three House retirement committee members present at the Senate
hearing.

“All of us realize there are issues with the economy and nation,” Pope said. “They (system officials) are doing what they can to ensure systems remain sound.”

401(k) & IRA Retirement accounts have lost $2 trillion

Congress' top budget analyst estimated Americans' retirement plans have lost as much as $2 trillion in the past 15 months - about 20 percent of their value as turmoil in the financial industry is whittling away workers' nest eggs.

The upheaval that has engulfed financial firms and sent the stock market lummeting is also devastating people's savings, forcing families to hold off on major purchases and even delay retirement, Peter Orszag, the head of the Congressional Budget Office, told the House Education and Labor Committee.

"Unlike Wall Street executives, America's families don't have a golden parachute to fall back on," said Rep. George Miller, D-Calif., the panel chairman. "It's clear that their retirement security may be one of the greatest casualties of this financial crisis."

A new AARP study found that because of the economic downturn, one in five workers 45 and older has stopped putting money into a 401(k), IRA or other retirement savings account during the past year, and nearly one in four has increased the number of hours he works. More than one-third of these workers have considered delaying retirement, according to the study, which also found that more than half now find it difficult to pay for basic items such as food, gas and medicine.

The current market turmoil adds to an already difficult retirement savings picture for Americans, who are increasingly shouldering the burden of managing and funding their own company-sponsored retirement savings plans as firms eliminate traditional pensions.