I had the opportunity to attend the National Conference of State Legislatures (NCSL) Legislative Summit last week. NCSL is a bipartisan organization that serves the legislators and staffs of the nation’s 50 states. They provide research, technical assistance and opportunities for policymakers to exchange ideas on the most pressing state issues.
Sessions on education, fiscal policy, health care, immigration, veteran’s affairs, elections and more were the focus of the four-day summit. I was specifically asked to attend the NCSL summit because of my role on the Pension Management Oversight Commission, which studies topics related to pensions, annuities and retirement benefits for public employees, teachers and public safety officers.
During one of the summit sessions we discussed the pros and cons of two types of retirement plans: defined contribution and defined benefit.
A defined contribution plan requires that an individual account be set up for each participant in the plan. The most common type of defined contribution plan is the 401(k) plan. With a defined contribution plan, a percentage of income is placed in an account to be invested each year. It’s called “defined contribution” because you can only contribute a fixed maximum amount to the plan each year. This type of plan allows employees to make pre-tax contributions to their own retirement accounts. Some employers will also chip in a percentage or match contributions made by employees.
A defined benefit plan pays a retiree a specific benefit based on years of service and salary level until they die. Both the employer and the employee are able to contribute to a defined benefit plan, although in some cases an employer may be the sole contributor. Funds in these plans are pooled and investments are managed professionally. Defined benefit plans are more costly for employers, therefore most private sector employers have recently scaled back dramatically or eliminated these plans altogether.
Another topic of discussion was the management of state pension liabilities and litigation. We are fortunate here in Indiana to have a stable retirement system, unlike places like Detroit or California. The Indiana Public Retirement System (INPRS) is among the largest 100 pension funds in the U.S. with approximately $25.7 billion in assets under management at fiscal year-end 2011. The fund serves approximately 447,000 members and retirees representing more than 1,400 employers including public universities, school corporations, municipalities and state agencies.
I appreciate the exchange of ideas and in-depth conversation at the summit. An important part of the legislative process is input from others – and that includes you. Please feel free to contact me anytime by phone at 317-232-9863 or via email at h58@iga.in.gov.
