Improving State and Local Employees’ Retirement Readiness

Prospects for state and local employees’ financial security in retirement are better than that of their private-sector counterparts, according to a new paper from the National Association of Government Defined Contribution Administrators (NAGDCA). Nonetheless, the paper argues, steps still should be taken to improve their readiness. 

The paper, “Improving Retirement Readiness for Public Employees,” cites a 2011 Center for Retirement Research study that found that public-sector employees are better prepared financially for retirement than private-sector employees. But that doesn’t spell full replacement of pre-retirement income during retirement — the study said that employees who spend more than half of their careers in the public sector are on course for a replacement rate of less than 75%. 

Public-sector employers, just like those in the private sector, face challenges in meeting current and future pension obligations, the paper says. It lists the following among states’ responses:

• going beyond traditional defined benefit plans and adding defined contribution plans and hybrid plans

• reducing or eliminating cost-of-living adjustments

• increasing current and/or new employee contributions

• changing pension calculation formulae

• increasing the age and/or length of tenure an employee must meet for eligibility to participate in the plan

The paper suggests a variety of steps that public-sector employers can take to help their employees be better prepared financially for retirement. Among them: 

• make participation and decisionmaking simpler

• keep plan costs down

• provide investment training to board members and anyone who fulfills a fiduciary duty

• oversee investment options

• use outcome-based income projections 

But public-sector employers do not bear all the responsibility for boosting their employees’ readiness — the employees themselves do as well, the paper points out. It argues that employers can help participants play a greater role by offering them tools to assess their financial readiness to retire, expanding retirement planning education and encouraging participation in the plan.