Highlights of the NABE/AUBER 2005 Washington Economic Policy Conference

For those AUBER members who were unable to attend the 2005 NABE and AUBER Economic Policy Conference held in Washington, D.C., in March, the following paragraphs briefly summarize selected sessions.

Universities in Economic Development: Technology Creation, Diffusion, and Commercialization

Jeffery T. Collins, director of the Center for Business and Economic Research at the University of Arkansas, and Andrew Brod, director of the Office of Business and Economic Research at the University of North Carolina at Greensboro, moderated the session.

Assistant Secretary for Technology Policy (TA/OTP), Benjamin H. Wu, emphasized the importance of bringing together key technology stakeholders—industry, academia, and government—to move knowledge quickly and efficiently from the laboratory to the market. Wu outlined the office’s initiatives to support its mission and goals of promoting innovation, encouraging entrepreneurship and tech-led economic development, improving infrastructure, and empowering people through education and technology. It is critical to develop strong working relationships with research-based universities. More information is available on the TA/OTP web site, http://www.technology.gov/.

Sandy Baruah, chief of staff, Economic Development Administration, U.S. Department of Commerce, emphasized how universities can be powerful economic engines and drive private sector investment in their area. In addition, he described the importance of putting money in the hands of state and regional leaders, rather than the federal government, to support research at universities and promote innovation. He explained that the United States has an advantage in using university innovations because other nations are hesitant to do this. University centers make resources available for commercialization, which, in turn, supplement economic development activities.

Carol Conway, deputy director of the Southern Growth Policies Board, outlined 10 commandments of rural development for southern states and provided four examples of regional innovations in commercialization at universities in the south. Centers that were highlighted included the University of South Alabama, College of Medicine, Office of Emerging Health Technologies, which cares for the chronically ill; the University of Arkansas, Rural Sourcing Inc., whose goal is to counter outsourcing; the Oklahoma Center for Advancement of Science and Technology, which has created a research and development faculty and student intern partnerships initiative; and the Virginia Tech Institute for Advanced Learning and Research, which focuses on bringing advanced technology and recruiting top-notch talent to the southside Virginia region.

The Current Debate about Public Employee Pensions

Richard Wobbekind, AUBER Secretary/Treasurer, associate dean, Leeds School of Business, University of Colorado at Boulder, presided over the session, which was sponsored by AUBER and NABE Regional/Utility Roundtable.

Keith Brainard of the National Association of State Retirement Administrators presented an overview of the U.S. public retirement system, which included an explanation of current issues and trends, and a discussion of the debate about defined-benefit and defined-contribution plans.

The public retirement system community includes more than 15 million people employed by state or local governments throughout the United States. Overall, the system has $2.3 trillion in assets, collects $70 billion in contributions each year, and distributes more than $110 billion annually in benefits.

Brainard outlined the pension plan types among public employees, of which defined benefit plans are the primary retirement benefit for 90% of government employees. The remaining employees participate in defined-contribution plans, along with a small but growing number who participate in hybrid plans. Most hybrid plans in the public sector have been established in the last 10 years and typically take the form of cash balance or traditional defined-benefit plans, combined with typical defined-contribution plans. One-fourth of state and local government employees do not participate in Social Security, which is a pay-as-you-go plan, in contrast to public pensions, which are mostly prefunded. Currently, the aggregate actuarial funding level of public pensions is about 89%.

The opportunity for employees to choose between plans is increasing, although a legislative proposal and an initiative in California could close all public defined-benefit plans in the state to new enrollees. Brainard emphasized that this could diminish the ability of public employers to attract and retain talented workers and could likely lead to less retirement security. While there is some opposition to defined-benefit plans, Brainard dispelled some of the plan myths and said that there are few alternatives to it.

Paul Zorn, Gabriel, Roeder, Smith & Company, continued the discussion of the current public pension debate of defined-benefit plans versus defined-contribution plans. He explained that the debate takes place within a historical context and within a broader policy framework, with the main argument not about whether defined-contribution plans are a useful tool for providing retirement benefits, but rather whether defined-contribution plans should replace defined-benefit plans. This debate is currently going on in California, Michigan, and Florida.

Benefit design has evolved continuously over time, and many defined-benefit plans have defined-contribution components. Zorn provided a timeline of public pension plans from their inception in 1857, when the first municipal retirement system was established in New York City, to the present debate about which plans are most beneficial to employers, employees, and citizens. In 1935, when Social Security was first enacted, state and local government employees were excluded from coverage, forcing them to create their own plans. Initially, these plans were combinations of defined-benefit and defined-contribution plans. When Congress decided to allow states to voluntarily join Social Security in 1950, changes to the design of state and local plans took place, with more than one-third of the public entities opting for a split formula. By 1980, many plans had returned to a single benefit multiplier. By the end of that decade and throughout the 1990s, interest in public sector-defined contribution plans increased, but, due to financial market declines, interest decreased between 2000 and 2002. Recent increases in defined-benefit plan contribution rates and recent budgetary pressures on state and local governments have sparked renewed interest in defined-contribution plans.

The debate also takes place within a broader policy framework, which includes Social Security, employer benefit plans, and individual savings. Key policy issues and interests outlined by Zorn were broken into three groups of people who would be affected: state and local government employers, employees and retirees, and taxpayers and citizens. The main goals of government employers are to attract and retain qualified employees, and to efficiently finance and budget benefit costs. Public sector employees and retirees want competitive compensation for services and secure retirement benefits; taxpayers and citizens strive to obtain quality public services with minimum taxes, while maintaining a healthy local economy.

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