The most effective reform, according to many experts, is shifting public employees to a defined contribution pension plan. Doing that means that existing defined benefit accruals for current employees would be frozen and employees would be moved to a defined contribution plan with the previously accrued amount placed in their new defined contribution account.
|But it's not the only option for city and state governments. Here's what State Budget Solutions also suggests:
|Primary reforms to existing defined benefit plans
- Cap employer cost (i.e., state will pay no more than 10% of salary toward an employee benefit);
- Require the full ARC (actuarially required contributions,or normal cost) of the plan to be paid each calendar year or legislative per diem will be canceled until full ARC is paid;
- Require that the ARC be calculated using a realistic discount rate (either the Treasury rate or the bond rate of the plan sponsor);
- Smooth pension wealth accrual making it a constant percentage of earnings(i.e. a cash balance or constant accrual plan).
Close loopholes to reform pensions
- Eliminate double-dipping;
- Eliminate spiking;
- When calculating base pay, do not base the calculation of retirement pay on anything other than base salary;
- Require any purchase of service credit to be at full actuarial cost or prohibit the purchase of service credit;
- Eliminate cost-of-living adjustments or tie them to the CPI.
Secondary reforms
- Increase employee contributions;
- Increase retirement age;
- Increase vesting period;
- Impose penalty on retire/rehire -new employer must pay pension;
- Increase the number of years used in final-average-salary calculation;
- Require that any purchase of service credit be at full actuarial cost (or prohibit the purchase of service credit);
- Cap retirement benefits at not more than 100% of final average salary;
- Eliminate pensions for employees who are convicted of work-related crimes;
- No pension benefit for voluntary service;
- Have tight review of disability claims.
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