National Conference on Public Employee Retirement Systems
The Secure Choice
Pension (SCP)
National Conference on
Public Employee Retirement Systems
National Conference on Public Employee Retirement Systems
Secure Choice Pension (SCP)
NCPERS/Hank Kim
Basic Design
Public – Private
Board
Multiple ER, DB (career
accumulation plan)
Most details decided by
state law; state or regional
coverage
Contemplated at 3% ER
and 3% EE
Basic benefit guaranteed at 3%;
Crediting at 5%; Retiree reserve
fund provides for potential dividend
above 7%
Annuitized payments
Determined by state law
ER
DB (career average plan)
Past service credits allowed;
ER could offer separate
401(k); could be converted
to traditional DB plan
ER contributions based on
EE’s age and salary; EE
contributions may be
allowed
Percentage (as low as 1%) of EE’s
career average pay multiplied by
YOS; bonus benefits possible in any
given year
Annuitized payments, except
benefits worth less than
$5,000
Insured by PBGC, but lower
premiums ($5 per
participant)
ER
Hybrid
Pension locked in at
retirement
?
Greater of defined floor benefit set
at 5% return or adjustable benefit
(actual market return)
Annuitized payments
Benefits reduced
ER
Cash balance plan
EEs automatically enrolled;
benefit expressed as
account balance; managed
professionally
ER sole funder
Principal guaranteed; higher
cumulative rate possible
Annuitized payments
RSF is new licensed
legal entity; ER, EE
and retiree reps on
advisory board
Collective trust; pooled
professional investment
Financial institutions are
eligible; Dutch model;
expanded refundable saver’s
credit
ER at 3% minimum; EE can
match (2 to 1) – reverse
match concept; aggregate
total contribution capped
at 9%
Annual crediting of 3% maximum;
returns over 3% held in reserve
fund
Annuitized payments
Benefits reduced
DB (cash balance)
Models are existing SIMPLE
Plans and British NEST;
larger saver’s credit
Minimum ER
(contemplated at 4%) and
EE contributions (2-3%);
higher limits than 401(k)s;
government match for
low-income savers
Lump sum/rollover
Market return
Plain Old Pension Plan (POPP)
Pension Rights Center/
Judy Mazo (Segal Company, retired)
Adjustable Pension Plan (APP)
Cheiron/Richard Hudson
Portfolio Cash Balance Plan
Covington & Burling/
Robert Newman
Retirement Security Funds
Pension Rights Center/
Karen Ferguson
Super Simple Plan
Gene Steuerle/Pamela Perun
Additional Design
Details
Sponsor
ER
Funding
Return
Market return
Distributions
Backstop
?
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National Conference on Public Employee Retirement Systems
The Secure Choice Pension
Public – Private Partnership
Board of Trustees
Multiple Employer Plan—spreading risk
DB “Career Accumulation Plan” (Hybrid): each participant
will have an individual account providing for a minimum
guaranteed benefit and an opportunity for participation in
additional earnings
Flexibility, Predictability, Portability, Simplicity &
Sustainability
Conservative actuarial, funding, and investment
assumptions
Effectively use the investment power of public plans
Augments (not replace) existing retirement programs
Multiple options to address underfunding risk
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National Conference on Public Employee Retirement Systems
Summary of Proposed Pension Provisions for
the Secure Choice Pension (SCP)
Normal Retirement at 65
6% Contribution Rate
7 % Long Term Investment Discount Rate
Interest Crediting Rate is based on a US Treasury
reported rate (approximately 5%)
Personal
Savings
including
401(k)’s
Social
Security
3% minimum career interest crediting rate
Immediate vesting
Individual SCP Participant Balances
At retirement the SCP balance is converted to a
guaranteed life annuity
Secure
Choice
Pension
These provisions can be adjusted to fine-tune the
balance between benefits and cost.
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National Conference on Public Employee Retirement Systems
SCP Estimated Income Replacement
ESTIMATED REPLACEMENT RATIOS
WITH A 5% INTEREST CREDITING RATE
Entry
Age
Expected
Social Security
Replacement Ratio1
Replacement Ratio
from Expected Personal
Savings Including 401(k)2
Total Replacement Ratio
with Social Security and
Personal Savings Only
Expected SCP
Replacement
Ratio3
Total
Replacement
Ratio with SCP
25
30%
25%
55%
29%
84%
35
26%
18%
44%
21%
65%
45
17%
11%
28%
13%
41%
1
2
3
Calculated using 2011 Social Security bend points and assuming career earnings consistent with national average. For ages 35 and 45, the replacement
ratio is prorated to reflect the fraction of a participant’s 35 years of covered earnings used in Social Security Primary Insurance Amount calculation
which would be earned under their tenure with their current employer if they worked until age 65.
Calculated using assumed salary increases based on age, an average return of 5% per year, a contribution rate of 6% per year, retirement of age 65, and
annuity conversion based on PBGC annuity valuation assumptions.
Calculated using assumed salary increases based on age, and an expected credited interest rate of 5% per year.
Retirement Income Replacement Gap:
Surveys report individuals estimate 60% as
adequate—when 80% to 90% is needed.
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National Conference on Public Employee Retirement Systems
SCP 3-5-7
3% – 5% – 7%
3% minimum career interest crediting rate is the basis for the
benefit
5% interest crediting rate is based on a US Treasury reported
rate
7% is the long-term investment assumption used in the
funding calculation
Returns over 7% will be held in a reserve fund for payment of
the crediting rate should plan experience be insufficient to
meet the minimum credited interest rate
Returns consistently in excess of 7% may be available to
provide additional retiree benefits
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National Conference on Public Employee Retirement Systems
SCP Funding: How It Works
SCP funding takes a “belt and suspenders”
approach for protection from adverse experience
and flexibility in sharing the risk of underfunding.
Four layers of protection are built in.
Layer 1: Benefit Design as Shown
Earlier
Layer 2: The Annual Contribution
Layer 3: The Dividend Reserve
Fund (DRF)
LAYER 1
LAYER 2
LAYER 3
LAYER 4
Layer 4: Termination or Withdrawal of An
Employer
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National Conference on Public Employee Retirement Systems
SCP Sample Projections
The following tables illustrate a sample projection
of an employer group over a 10-year period
The employer group assumes:
25 employees
Ages uniformly distributed over the working career
Average salary of $40,000
Modeled investment return and crediting rates are
as shown in the tables
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National Conference on Public Employee Retirement Systems
SCP Stress Test 1
The projection below models an investment market
assuming the valuation assumptions as described earlier
are exactly met.
Year 1
Effective
Contribution %
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
6.01%
6.03%
6.04%
6.04%
6.04%
6.03%
6.00%
5.99%
5.93%
5.89%
5.88%
100.00%
137.77%
138.12%
138.42%
138.68%
138.73%
139.20%
139.12%
140.41%
141.09%
140.38%
Unfunded/
(Overfunded)
Liability
0
(18,717)
(39,644)
(62,865)
(88,463)
(116,011)
(146,953)
(178,109)
(216,429)
(255,008)
(286,433)
DRF
0
0
0
0
0
0
0
0
0
0
0
—
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
7.00%
1,000,000
1,035,181
1,071,091
1,107,363
1,144,006
1,181,031
1,210,979
1,240,228
1,247,629
1,268,236
1,290,993
Funded %
Investment
Return
Total Payroll
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National Conference on Public Employee Retirement Systems
SCP Stress Test 2
The projection below models an investment market using
actual returns for the 1990 to 2000 period.
Year 1
Effective
Contribution %
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
6.01%
6.04%
5.98%
5.98%
5.96%
6.00%
5.67%
5.45%
4.97%
4.51%
4.32%
100.00%
136.60%
140.12%
141.51%
142.51%
142.12%
140.52%
138.59%
134.23%
134.51%
139.30%
Unfunded/
(Overfunded)
Liability
0
(17,047)
(40,455)
(66,519)
(95,704)
(124,574)
(150,316)
(174,103)
(181,973)
(212,750)
(277,111)
DRF
0
0
0
0
0
0
13,062
32,012
76,994
121,387
152,960
Investment
Return
--
2.45%
19.36%
7.37%
8.20%
4.08%
22.31%
14.72%
19.97%
17.13%
13.58%
1,000,000
1,035,181
1,071,091
1,107,363
1,144,006
1,181,031
1,210,979
1,240,228
1,247,629
1,268,236
1,290,993
Funded %
Total Payroll
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National Conference on Public Employee Retirement Systems
SCP Sample Projection 3
The projection below models an investment market
using actual returns for the 2000 to 2010 period.
Year 1
Effective
Contribution %
Year 2
Year 3
Year 4
Year 5
Year 6
Year 7
Year 8
Year 9
Year 10
Year 11
6.01%
6.05%
6.12%
6.25%
6.14%
6.12%
6.14%
6.05%
6.06%
6.74%
6.47%
100.00%
135.65%
133.60%
129.58%
130.08%
130.72%
131.27%
132.69%
135.56%
127.52%
127.38%
Unfunded/
(Overfunded)
Liability
0
(16,603)
(33,879)
(47,404)
(67,731)
(90,861)
(116,011)
(147,462)
(189,025)
(169,664)
(193,094)
DRF
0
0
0
0
0
0
0
0
0
0
0
Investment
Return
--
-1.25%
-2.95%
-8.39%
16.69%
7.73%
4.51%
10.17%
5.01%
-16.30%
15.71%
1,000,000
1,035,181
1,071,091
1,107,363
1,144,006
1,181,031
1,210,979
1,240,228
1,247,629
1,268,236
1,290,993
Funded %
Total Payroll
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National Conference on Public Employee Retirement Systems
States
•
•
•
•
•
•
•
Massachusetts
California
New York
Florida
Ohio
Connecticut
Others
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National Conference on Public Employee Retirement Systems
Small Businesses
Favor or Oppose
Now I am going to read you different components of a proposal to allow private
sector workers to participate in a pension plan similar to the ones public employees
get. Please listen to the whole thing, then I'll ask for your opinion about it.
Under this proposal, people who work for private companies would have the
opportunity to participate in a Secure Choice Pension, a new retirement plan
modeled after the public employee pension system, and receive a guaranteed
monthly pension benefit, like many public employees do, when they retire.
Unlike a 401(k), employees would receive a guaranteed pension benefit of at
least the amount they put in over time, plus any investment return. Employers
could choose to simply give access to their employees, or contribute to the
plan, or both. Instead of an individual account, the contributions would go into
a large fund managed by a team of experienced investment professionals and
overseen by an administrative board. The board would include representatives
from the existing public employee pension system, representatives of
participating employers, and representatives of participating employees.
Contributions would be tax deferred — meaning employees would pay no
taxes on the money until they take it out.
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National Conference on Public Employee Retirement Systems
Small business owners overwhelmingly support the Secure Choice
Pension, regardless of whether or not they already provide a
retirement benefit to their employees.
The Secure Choice Plan Proposal
All Small Business
Benefits
84
82
No Benefits
80
+69
+67
18
15
5
2
Favor
Oppose
Don't Know
+63
17
20
15
4
15
5
Favor
Oppose
Favor
Oppose
Now, please tell me if you would favor or oppose this proposal having this type of retirement
plan available for small private employers? [FAVOR/OPPOSE] Is that strongly or somewhat?
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National Conference on Public Employee Retirement Systems
SCP Outreach
Public pension stakeholders
Plan sponsors, plans, unions/employee associations
Defined benefit community
ABC, EBRI, AARP
Business and 401(k) industries
Congress and the Administration
The public
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National Conference on Public Employee Retirement Systems
www.RetirementSecurityforAll.org
Campaign to bring awareness and support for
SCPs
We want ordinary Americans telling elected
officials to make SCPs a reality
We want employers and employees who
don’t have pensions to say they want SCPs
We want folks who have pensions to say we
support working Americans to have SCPs
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National Conference on Public Employee Retirement Systems
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National Conference on Public Employee Retirement Systems
Thank You
NCPERS
444 North Capitol Street, NW, Suite 630
Washington, DC 20001
1-877-202-5706
www.retirementsecurityforall.org
www.NCPERS.org
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