Answering the Public Pension Question

It’s important that your clients understand the perspectives of each group and the potential conflicts among them. This will help identify who among the various stakeholders should become part of an analytical and decision-making body.

Another key to pre-planning is agreeing on the priorities and values of the organization. This provides a benchmark to measure the current retirement program against any future alternative. The organization’s priorities should be weighted and documented to establish a framework for ongoing analysis. This will also help settle conflicts in the event of budget issues, cost reductions or when reviewing the interests of certain employee groups.

Analysis and Solution. Once a pre-planning document is established, the next step is to determine whether the existing retirement program aligns with priorities and meets the stated goals. If there are gaps, it is important to understand their causes. Likewise, it is necessary to identify the demographics of the work force and determine whether the system is sustainable in the short and long term. Part of this will require mapping out scenarios that not only contemplate reasonably predictable circumstances, but also more dramatic market upswings and downturns. Once this process is complete, your clients can better visualize what solution would work best in the face of change.

In some cases, your analysis may confirm the existing plan is meeting its goals and does not require significant change. For others, it will be obvious that more adjustments must take place. Such a redesign should consider a number of factors, including program features and options, such as costs, benefits and risks; the ability to meet stated organizational goals; the impact to stakeholders; and the ability to overcome obstacles (past employee benefit commitments, contractual agreements, state statutes and constitutions, and local laws and charters).

The good news is that decision makers today have a range of options. These include retaining the standing plan for current employees and establishing a defined-contribution plan for newer employees, or introducing a new plan across the organization and giving employees the option to select the new plan or remain with the old.

Implementation. A benefits change of any scale requires careful planning and due diligence. It is imperative to help your clients build a comprehensive transition and implementation plan that clearly identifies team members and responsibilities; key dates and events; contractual, legislative and legal factors; service providers for various aspects of the program; communications planning and elements; and performance metrics and feedback mechanisms.

There is no question that traditional pension plans are an important, highly visible and—in today’s environment—highly emotional benefit for public sector workers. Yet they have also become vulnerable as many of these state and municipal employers wrestle with budget issues. The focus on these programs creates an opportunity for plan decision makers to assess their own situation, no matter what their status is. Each situation is unique and there is no one-size-fits-all solution. However, applying a thorough and process-driven approach is key to reaching the right outcome.