43 states enact pension reform in past 3 years

Forty-three states enacted major public pension reform from 2009 through 2011 — 32 last year alone, according to a report from the National Conference of State Legislatures.

Driven by two recessions since 1999 that hurt state budgets and pension plan asset values, NCSL found “a record amount of legislation” aimed at restructuring contributions and benefit provisions of state retirement plans, as average funding ratios plummeted from a record high of 103% in 1999 to as low as 77% in 2010, according to an estimate by the Boston College Center for Retirement Research.

Increased employee contributions were a common reform, with 17 states in 2011 raising the amount that employees have to contribute. Of those 17 states, 14 raised levels for current as well as new employees, and 10 states reduced the employer contributions.

Other reforms included higher age and service requirements for benefits, generally for new hires; reduced cost-of-living increases; and longer periods for calculating average salary to determine benefits.

Nearly all the reforms enacted from 2009 through 2011 involved defined benefit plans, noted the report, which was released Monday, with the exception of Michigan and Utah, which in 2010, “broke with tradition to adopt fundamentally restructured plan designs.”

Michigan replaced its defined benefit plan for school employees with a hybrid plan that included a defined contribution element; Utah offered new employees a choice of a hybrid plan or a simple defined contribution plan.

“Few states have moved toward defined contribution plans on the private sector model,” although several states are considering them as options, according to the report, which cited a reluctance to close defined benefit plans, due to concerns about transitional costs, unfunded liabilities and dwindling participants.