Factbox: States take steps to rein in pensions

Mon May 24, 2010 5:32pm EDT

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(Reuters) - Cash-hungry states are taking steps to put the brake on pension costs, although legal constraints often prevent them from taking away benefits they have already granted to current workers and retirees.

The following are examples of the ways that states are reining in benefits for new hires:

* Utah, after closing its defined benefit plan, this year joined the list of states that offer workers both defined contribution plans and hybrid plans, which also have elements of defined benefit plans, the National Conference of State Legislatures said in a May report.

Defined benefit plans guarantee retirees set amounts for the rest of their lives. Although offered by most states, the schemes are more expensive than thrift plans that pay retirees only what they and their employers contributed, plus any investment returns.

States such as Colorado, Florida, Montana, North Dakota, Ohio and South Carolina let some workers select defined contribution plans as options.

Michigan and Alaska are among the few states that now offer only defined contribution plans.

Nebraska offers a cash balance plan in which the state and workers pay in but there is a set annual return.

* States that this year opted to curb the cost of their retirement funds by raising worker contributions include Colorado, Iowa, Minnesota, Mississippi, Vermont and Wyoming.

* Eight states -- Arizona, Colorado, Illinois, Iowa, Mississippi, New Jersey, Vermont and Virginia -- adopted various cost-cutting strategies, including lowering benefits for new hires by hiking contributions, lengthening vesting, raising retirement ages and length of service rules, and using tougher formulas to calculate benefits.

Virginia, for example, now requires new hires to pay in 5 percent of their qualifying compensation. Like several other states, it also reduced inflation adjustments.

Colorado now requires that workers with three decades of service be 58 years old -- not 55 -- to retire. In 2017, the retirement age climbs to 60.

* Arizona is among several states that cut early retirement benefits, while Iowa, Michigan and New York are offering early retirement incentives.

* The list of states delaying pension contributions includes New Jersey and New Mexico, which will delay a 0.75 percent annual increase in their contributions until fiscal 2012.

Source: The National Conference of State Legislatures, based in Denver, is a bipartisan group serving legislators around the United States.

(Reporting by Joan Gralla; Editing by John O'Callaghan)

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