Best Practices

Saving Public Defined Benefit Plans: Talking Points

Saving Public Defined Benefit Plans: Talking Points
1 min, 40 sec

The funded status of public employee defined benefit (DB) retirement plans continues to garner great debate in the industry and press. DB plans are the primary vehicle for ensuring retirement income security for public workers, and Callan believes these plans are viable and necessary in this sector.

The following talking points, taken from a paper I wrote with Karen Harris of our Capital Markets Research group, should help to move the discussion forward around the importance of DB plans. In the paper, we expand on each point and support our assertions with research, data, and actuarial considerations. The points are:

  1. DB plans serve many purposes beyond providing constituents with retirement income.
  2. DB plans are proven to be extremely cost effective and reliable in delivering basic retirement income security—when the rules of DB finance are followed.
  3. Many public DB plans are underfunded today, but not because of paltry long-term returns. It is primarily because plan sponsors’ contributions were neither sufficient nor consistent enough to properly fund the benefits promised.
  4. New benefits cannot be funded out of better-than-average investment returns simply because average returns is all one can expect over the life of the plan.
  5. DB plan funding surpluses and deficits occur as part of the normal cycle of investment market returns.
  6. Plans that implement an actuarially sound funding policy will achieve 100% funded status over the long run. Over the short term, the plan could veer off course because of market cycles.
  7. Healthy DB plans are underpinned by a sustainable benefit design, a strong governance process, and the sponsor’s commitment to regularly fund the plan.

Posted by

Share on facebook
Share on twitter
Share on linkedin
Related Posts

Unlocking the Secrets of the 'Data Vault'

Bo Abesamis
Bo Abesamis describes the Callan "Data Vault," a repository where data is collected, cleansed, aggregated, and curated.

Breaking the Ice on Retirement Income Solutions—A Conversation Starter

Todd Carabasi
While prevalence is low, DC plans are increasingly adding a discussion of retirement income solutions to their agendas.

DOL Calls for Stricter Rules Around ESG Investing in Retirement Plans

Thomas Shingler

For Corporate Pension Plans, We Have Good News and Bad News

William Emmett

The Importance of Defining Fundamental Investment Beliefs

Ron Peyton

How STRIPS Can Help Corporate DB Plans

If interest rates decline, STRIPS can help corporate DB plans partially hedge their fixed income allocation using less capital than other options

The Essential Elements of Culture

Ron Peyton

How Can an Organization Achieve Gender Diversity?

Ron Peyton

Untangling the Gordian Knot of ‘Cash Drag’

William Emmett

Aging and Financial Decisions

Stephen Trousdale
At Callan's National Conference, Hal Hershfield of UCLA and Raphael Schoenle of Brandeis discussed misperceptions about aging.

Callan Family Office

You are now leaving Callan LLC’s website and going to Callan Family Office’s website. Callan Family Office is not affiliated with Callan LLC.  Callan LLC has licensed the Callan® trademark to Callan Family Office for use in providing investment advisory services to ultra-high net worth clients, family foundations, and endowments. Callan Family Office and Callan LLC are independent, unaffiliated investment advisory firms separately registered with the Securities and Exchange Commission under the Investment Advisers Act of 1940.

Callan LLC is not responsible for the services and content on Callan Family Office’s website. Inclusion of this link does not constitute or imply an endorsement, sponsorship, or recommendation by Callan LLC of their website, or its contents, and Callan LLC is not responsible or liable for your use of it. When visiting their website, you are subject to Callan Family Office’s terms of use and privacy policies.