Note: Supplemental materials are not guaranteed with Rental or Used book purchases.
- ISBN: 9780849305481 | 0849305489
- Cover: Hardcover
- Copyright: 8/21/2008
Intense media coverage of the public pension funding crisis continues to fuel heightened awareness in and debate over public pension benefits. With over $3 trillion in assets currently under management, the ramifications of poor oversight are severe. It is important that practitioners, researchers, and taxpayers be well-advised regarding any concerns, but until now traditional references have provided very little coverage.
Preface | p. xvii |
Acknowledgment | p. xix |
About the Author | p. xxi |
Overview | p. 1 |
Retirement Benefits | p. 2 |
Examining the State and Local Pension Plan Management | p. 3 |
A Brief History of State and Local Public Pension Plans | p. 6 |
Pre-1940 History | p. 6 |
Post-1940 History | p. 7 |
Public and Private Sector Pension Benefits | p. 9 |
State and Local Pension Systems | p. 10 |
Public Pension Systems, Plans, and Funds | p. 10 |
Types of Public Pension Plans | p. 12 |
Historical Data on the Number of Pension Systems | p. 13 |
Breakdown between State- and Local-Level Pension Systems | p. 14 |
Growth of Public Pension System Assets | p. 17 |
Pension Asset Growth | p. 17 |
Source of Pension Asset Growth | p. 18 |
Sufficiency of Pension Asset Growth | p. 21 |
Overview | p. 23 |
References | p. 24 |
Appendix | p. 26 |
Pension Benefit Design | p. 29 |
Regular Service-Related Benefits | p. 29 |
Normal Service Benefit | p. 30 |
Benefit Multiplier | p. 30 |
Final Average Salary | p. 33 |
Years of Service | p. 34 |
Requirement for Normal Retirement Benefits | p. 36 |
State Income Tax Treatment | p. 37 |
Early Retirement Benefit | p. 37 |
Early Retirement Incentive Program | p. 39 |
Postemployment Benefit Adjustment | p. 40 |
Purchase of Service Credits | p. 41 |
Types of Service and Years of Service to Be Purchased | p. 43 |
Cost of Purchase and Its Payment | p. 43 |
Ancillary Benefits | p. 45 |
Disability Benefits | p. 45 |
Death Benefits | p. 46 |
Health Benefits | p. 47 |
Withdrawal Benefits | p. 47 |
Deferred Retirement Option Plan (DROP) Program | p. 47 |
Major Features of DROP | p. 47 |
Pros and Cons of DROP | p. 49 |
DROP Design Issues | p. 50 |
Adequacy of Public Pension Benefits | p. 51 |
Finding the Replacement Ratio | p. 52 |
Adequacy of the Public Pension Benefit | p. 53 |
Summary | p. 55 |
References | p. 56 |
Actuarial Valuation and Financial Reporting | p. 57 |
Assumptions | p. 58 |
Demographic Assumptions | p. 58 |
Economic Assumptions | p. 59 |
Actuarial Cost Methods | p. 60 |
Classification of Actuarial Cost Methods | p. 61 |
Projected Unit Credit (PUC) Cost Method | p. 62 |
Normal Cost | p. 62 |
Accrued Liability | p. 63 |
Example | p. 64 |
Unfunded Accrual Actuarial Liability (UAAL) and Amortization | p. 64 |
Entry Age Normal (EAN) Actuarial Cost Method | p. 66 |
Normal Cost under Level Dollar Method | p. 67 |
Accrued Liability under Level Dollar Method | p. 67 |
Entry Age Normal (EAN) Using Level Percentage | p. 68 |
Example | p. 68 |
Comparison between EAN and PUC | p. 70 |
Aggregate Cost Method | p. 71 |
UAAL | p. 71 |
Aggregate Cost Method | p. 72 |
Frozen Entry Age Cost Method | p. 73 |
Asset Valuation | p. 74 |
Financial Reporting and Accounting Standards | p. 75 |
GASB 25 | p. 76 |
Reporting Framework | p. 76 |
Parameters | p. 80 |
GASB 27 | p. 82 |
GASB Statement 50 | p. 84 |
References | p. 84 |
Governing Public Pension Plans | p. 85 |
ERISA | p. 85 |
ERISA Standards | p. 86 |
ERISA and Public Pension Plans | p. 88 |
Public Pension Benefit Protection | p. 88 |
Public Pension Plan Administration | p. 92 |
Pension Plan Administration: The Governing Board | p. 92 |
Election of Trustees to the Board | p. 93 |
Board's Fiduciary Responsibility Standard | p. 93 |
Conflict of Interest Rule and Code of Ethics | p. 94 |
The Board's Main Functions | p. 95 |
Pension Plan Administration: The Staff | p. 96 |
Member Service | p. 96 |
Supporting Services | p. 98 |
Investment Management | p. 99 |
Risk Management and Control | p. 99 |
Financial Reporting | p. 100 |
Funding Policy | p. 101 |
Public Pension Plan Oversight | p. 103 |
Legislative Committee | p. 104 |
Independent Pension Commission | p. 105 |
Other Oversight Mechanisms | p. 107 |
References | p. 108 |
Investment Management | p. 111 |
Overall Objective of Investment Management | p. 111 |
Portfolio Diversification | p. 112 |
The Theory | p. 112 |
Asset Classes | p. 114 |
Traditional Investments | p. 115 |
Alternative Investments | p. 118 |
Investment Policy | p. 120 |
Investment Objective and Risk | p. 120 |
Legal List to Control Risk | p. 122 |
Asset Allocation | p. 123 |
Roles and Responsibilities | p. 125 |
Responsibilities of the Board of Trustees | p. 125 |
Responsibilities of Internal Investment Staff | p. 126 |
Responsibilities of Investment Consultant | p. 127 |
Responsibilities of Investment Managers | p. 127 |
Responsibilities of Custodian | p. 128 |
Performance Measurement | p. 128 |
Calculating Investment Return | p. 128 |
Measuring Investment Managers' Performances | p. 129 |
Measuring Total Portfolio Performance | p. 131 |
Rebalancing | p. 133 |
Implementation Strategy | p. 133 |
Passive versus Active Management | p. 134 |
Internal versus External Management | p. 136 |
Summary | p. 138 |
References | p. 138 |
Pension Plan Management and the Operating Budget | p. 141 |
Underfunded Pension Plans | p. 142 |
Fiscal Illusion and Fiscal Stress | p. 143 |
How to Deal with Pension Underfunding | p. 144 |
Benefits of POB | p. 145 |
Risks of POB | p. 145 |
Overfunded Pension Plan | p. 147 |
Case Studies | p. 149 |
Illinois State Pension Systems | p. 150 |
Underfunding of Pension Contribution | p. 150 |
Pension Benefit Increase | p. 152 |
New Jersey Pension System | p. 153 |
Reduction in Pension Contribution | p. 154 |
Pension Benefit Increase | p. 156 |
Consequence | p. 157 |
New York State and Local Retirement System | p. 159 |
Pension Contribution Reduction by Governor | p. 159 |
Pension Contribution Reduction by Comptroller | p. 162 |
Consequence | p. 163 |
West Virginia Retirement System | p. 164 |
Underfunding of Pension Contribution | p. 164 |
State Efforts to Reduce Unfunded Liability | p. 166 |
Florida Retirement System | p. 168 |
Steady Asset Growth | p. 168 |
Constraint on Pension Benefit Increase | p. 171 |
Summary | p. 172 |
Pension Contribution Stabilization Methods | p. 173 |
Fixed Contribution Rates | p. 173 |
Minimum Contribution | p. 174 |
Indexing Contribution Rate to Prior Year's Level | p. 175 |
Corridor Funding | p. 175 |
Pension Fund Surplus Reserve | p. 176 |
Extend Pension Surplus Amortization | p. 176 |
Extend Asset Smoothing Period | p. 177 |
Summary | p. 177 |
References | p. 178 |
Defined Contribution Pension Plan | p. 181 |
Defined Benefit (DB) Plan | p. 182 |
Advantages of a Defined Benefit Plan | p. 182 |
Disadvantages of a Defined Benefit Plan | p. 183 |
Some Evidence of Defined Benefit Plan Risks | p. 185 |
Defined Contribution (DC) | p. 186 |
Advantages of the Defined Contribution Plan | p. 187 |
Disadvantages of the Defined Contribution Plan | p. 187 |
Pension Benefit Certainty | p. 188 |
Investment | p. 190 |
Disability Benefit | p. 191 |
Summary | p. 191 |
Public Sector Defined Contribution Plan Experience | p. 192 |
Mandatory Participation in Exclusive DC Plan | p. 192 |
Optional Participation in Exclusive Defined Contribution Plan | p. 193 |
Mandatory Participation in Hybrid Plan | p. 194 |
Optional Participation in the Hybrid Plan | p. 195 |
Summary | p. 196 |
Cash Balance Plan | p. 196 |
Cash Balance Plan | p. 197 |
Cash Balance Plan versus Defined Benefit Plan | p. 198 |
Cash Balance Plan versus Defined Contribution Plan | p. 199 |
Summary | p. 200 |
Nebraska Cash Balance Plan | p. 201 |
California Cash Balance Plan | p. 203 |
Defined Contribution Plan Design Issues | p. 203 |
Conclusion | p. 207 |
References | p. 208 |
Other Postemployment Benefits | p. 211 |
Healthcare for Retirees | p. 212 |
GASB Statements 43 and 45 | p. 213 |
Brief History of GASB Statements on OPEB Reporting | p. 213 |
GASB Statement 43 | p. 214 |
Financial Reporting Framework | p. 215 |
Parameters | p. 215 |
Implicit Subsidy Rate | p. 217 |
GASB Statement 45 | p. 218 |
Financial Implication of GASB Statements 43 and 45 | p. 218 |
Dealing with OPEB Liability | p. 219 |
Prefunding OPEB Liability | p. 220 |
OPEB Trust Fund | p. 220 |
OPEB Bond | p. 221 |
Reducing Health Benefits | p. 222 |
Legal Perspective | p. 223 |
Reducing Health Benefits | p. 224 |
Defined Contribution Health Benefit Plan | p. 226 |
Cash Contribution | p. 227 |
Converting Unused Sick Leave into Cash Contribution | p. 228 |
References | p. 229 |
Looking Forward | p. 231 |
Managing Pension Liability Growth | p. 233 |
Limiting Pension Benefit Increase | p. 233 |
Increasing Retirement Age | p. 235 |
Pension Benefit Level | p. 237 |
Containing the Negative Effect of Spiking | p. 239 |
Early Retirement Incentive Program | p. 239 |
Pension Obligation Bond | p. 240 |
Managing Pension Asset Growth | p. 240 |
Pension Funding Policy | p. 240 |
Smooth Pension Contribution Rate | p. 242 |
Investment Return | p. 242 |
Changing Pension Benefit Design | p. 243 |
Hybrid Plan | p. 243 |
Cost of Living Adjustment (COLA) | p. 244 |
Conclusion | p. 244 |
References | p. 245 |
Index | p. 247 |
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