ESG, New Legislative Leadership, and Secure 2.0 All Issues for Public Pensions to Watch
During NCPERS December 8 webinar, “2023 State and Federal Legislation Impacting Public Pensions,” panelists discussed the legislative activities and outcomes from 2022 and provided a preview for 2023.
During NCPERS December 8 webinar, “2023 State and Federal Legislation Impacting Public Pensions,” panelists Anthony Roda, partner at Williams and Jensen, and Bridget Early, NCPERS incoming Director of Membership and Strategic Alliances, discussed the legislative activities and outcomes from 2022 and provided a legislative preview for 2023. Hank Kim, NCPERS Executive Director and Counsel, moderated the conversation.
“Retirement Issues Are Consistently Bipartisan”
Diving right into the macro overview, Roda noted that in Congress “retirement issues are consistently bipartisan, especially with regard to access and affordability.” The Secure Act went into effect in 2019, but it took 13 years to be enacted. With retirement security continuing to be a major focus across party lines, the Secure Act 2.0 has the potential to pass as part of the omnibus appropriations bill. A key provision of the legislation would be increasing the age for requirement minimum distributions for both DB and DC plans from age 72 to 75.
Another important piece of legislation is related to the Healthcare Enhancement for Local Public Safety Officers Act (HELPS). Originally enacted in 2006, HELPS allows eligible retired public safety officers to exclude from gross income up to $3,000 in annual distributions from a governmental retirement plan to pay qualified health care insurance or long-term care premiums, provided the payment of premiums is made directly by the retirement plan to the provider of the health or long-term care plan. In practice though, it has become an administrative burden for many plans preventing public safety officers from accessing relief. Provisions in Secure 2.0 would address these issues. “We've had tremendous bipartisan support on this from Sen. Sherrod Brown of Ohio since day one, and Sen. Grassley of Iowa and Sen. Thune of South Dakota have been extremely helpful on the Republican side.”
Two other key areas of focus have been the Windfall Election Provision (WEP) and Government Pension Offset (GPO), and these are likely to continue to be a priority in 2023.
Defined Benefit Pensions Prove to Be Key for Public Employee Retention
Turning to the big themes at the state level, Early said a lot of people “played it safe” in 2022 as folks were getting ready for reelection and wrapping up budgets. State-by-state issues varied as well, but staff shortages became a major issue for several systems that reduced benefits.
In Alaska, for example, there was a big focus on plan design changes as the adverse effects of closing the system became apparent. “There's nothing really keeping teachers and public employees in Alaska, because there's nothing to build towards when it comes to a defined benefit plan,” said Early as she discussed the significant turnover Alaska has experienced in its workforce. “Numbers show that it is costing the state around $20 million additionally per year with the recruitment and retention issue, on top of the loss of the secure revenue that was going in with the previous plan design.” HB55 and HB220 both advanced last year.
Kentucky also faced severe staffing shortages, with public safety employees seeking jobs across state lines in Indiana where they would have access to a defined benefit plan. This year, there was a bill to have hazardous duty and public safety positions participate in the Kentucky system to get access to those benefits. Oklahoma is also considering reopening and expanding access to a DB plan following a switch to defined contribution.
What Issues May Impact Public Pensions in 2023?
“I think something that we're going to see in 2023 is the increased participation by lawmakers in trying to legislate how investments are made,” said Early. Looking at Arizona as an example, these policies are looking at investments from an ideological standpoint rather than potential revenue earnings. “And that's not being a sound fiduciary. So we're going to see that also come up more, because this is an issue that ALEC and Reason have also started to poke around in when it comes to how things should be invested. That will certainly bleed into 2023 and future issues, then future legislatures.”
“I really expect there to be legislation in the House on ESG, and an attempt to turn back the Biden final rule or, or more dramatically, place restrictions on what investments could be made by federally tax qualified plans,” added Roda. “I do think that the House Republicans see ESG as great political fodder. And I think they're going to they're going to use the issue throughout the Congress. There'll be hearings, and I expect legislation on it. This is a messaging area.”
Solutions to Address Staffing Shortages
Early is also watching how regions are responding to ongoing staffing shortages. Offering defined benefit pension plans can have a positive impact on staff retention, a growing issue for many public sector employers.
New Leadership Following 2022 Midterm Elections
In the midterm elections, Democrats “defied odds and recent history,” said Roda. There will be a number of new faces in legislative chambers and it will be important to educate new members about the value of defined benefit pensions.
An analysis done prior to the election showed that 32 of the top legislative leadership positions across the country were going to include new leaders. “Not only are we going to see new lawmakers, but we're also going to see new legislative leaders who are going to determine committee assignments, caucus priorities, those pieces that are going to be important to focus on because not only are they carrying the will of the people that elected them to their seat, but now they're also the leaders of their party in these chambers that will have priority set for them in that way as well,” added Early.
Additional Resources Available for Public Pensions
To learn more about the state and federal issues that may impact your fund, attend NCPERS 2023 Legislative Conference. Held January 22-24 in Washington, DC, attendees will hear from industry leaders about key issues affecting pension funds today and have the opportunity to meet with elected leaders. Download the brochure to learn more.
New this year, the Legislative Conference will be held in conjunction with the Pension Communications Summit. Held on January 23-24, attendees will learn strategies for improving member engagement, tips for effective negotiations with policymakers, external communications best practices, and more. View the agenda.
Attend both conferences and save $150 on registration. Don't wait—the early bird registration and hotel room block deadline are Thursday, January 5.
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