Optimal Option:SUNY’s Personal Retirement Plan

As a Model for Pension Reform

Presentation by E.J. McMahonFebruary 16, 2012

Cuomo Tier 6 Proposal

• Higher employee contributions, later retirement, reduced pension multiplier and pensionable salary base restrictions for all defined-benefit pension plans

• Option of defined-contribution plan

“401(k)s simply do not provide workers with the predictability and reliability of a defined-benefit pension, and on their own are not a viable option to allow workers to retire with dignity.”

-- state AFL-CIO

“The facts speak for themselves: replacing defined benefit pensions with 401(k)’s will put workers’ retirement security in danger.”

-- Binghamton Mayor Matt Ryan

“I stand firmly behind my position that defined contribution plans are not adequate for retirement security for public or private workers.”

-- Comptroller Thomas DiNapoli

SUNY Optional Retirement Program

Vesting

Employees in the Unclassified (e.g., UUP and MC-13) service who are full-time; and part-time UUP employees with Term appointments, MC employees who are at least half-time, and employees designated as eligible under local community college contract.

Eligibility

Occurs after 366 days of active service. This period may be waived for employees coming to SUNY with active employer sponsored retirement annuity contracts from one of the SUNY currently Authorized Investment Providers. All contributions will become the property of, and all investments will be directed by, the participant upon vesting.

•Retirement at any age subject to an IRS 10% penalty for distributions prior to age 59 ½ , unless separating from service after reaching the normal retirement age of 55 •Distributions exempt from the SUNY ORP are exempt from New York State Income Taxes. •Flexible options designed to allow participants to plan their retirement income distribution according to their own individual needs and preferences. Include periodic and systematic cash withdrawals, guaranteed lifetime annuity payments, and a variety of blended options and lifetime annuity dependent survivor payment levels.

Distributions

SUNY Plan Providers

TIAA-CREFING

METLIFEVALIC

CUNY Plan Providers

TIAA-CREFGuardian Life

MetLife

Optional DC Plan Advantages:Early vestingPortabilityFlexibilityDeath Benefit

Optional DC Plan Advantages for Worker:

Early vestingPortabilityFlexibilityDeath Benefit

Optional DC Plan Disadvantages for Worker:

Lack of guaranteed incomeLower annual benefit*

* Except for longest-tenured if investment returns are strong.

Optional DC Plan Advantages for Employers (Taxpayers):

TransparencyPredictabilityAttractiveness to employees

who value career flexibilityOptional DC Plan Disadvantages for Employers

(Taxpayers):

Higher recurring and average cost

Actual and Projected TIAA-CREFAccumulations and Annuities, SUNY

Cuomo Option Contributions (% Salary):4% Employer + 0% Employee = 4%

Or4% Employer + 3% Employee + 3% Employer =

10%

Recommended:

Employee 4-6% based on on Tier 6 DB scheduleEmployer 6-8% to bring total to 12%

Plan Design Issues:• Annuity Preference as at SUNY-CUNY•Plan Provider Competition•Fairly Priced Investment Choices•Default to Lifecycle Funds•Fee and Expense Transparency•Consumer Benchmarks (e.g., Brightscope)

“401(k)s simply do not provide workers with the predictability and reliability of a defined-benefit pension, and on their own are not a viable option to allow workers to retire with dignity.”

-- state AFL-CIO