Last week NPPC’s Executive Director, Bailey Childers, submitted testimony to the Democratic National Committee’s Platform Committee encouraging them to include retirement security as part of the 2016 platform. So far this year, the presidential candidates have said little about retirement security, aside from calls from some Republican candidates to cut Social Security benefits. We hope this testimony will encourage more candidates to speak about the need to protect retirement security for working families. You can read her testimony below:
My name is Bailey Childers and I am the Executive Director of the National Public Pension Coalition. At NPPC, we work to ensure that all Americans have a dignified retirement. Thank you for the opportunity to submit testimony to the Platform Committee.
America is in the midst of a retirement security crisis. Pew Charitable Trusts estimate that 30 million Americans lack access to a retirement savings vehicle through work and that only 49% of American workers participate in a retirement savings plan. Among those who do have access and do participate, account balances are so woefully low that the dream of retiring after a life of hard work is all but gone for most Americans. The National Institute for Retirement Security estimates that the median account balance of a 401(k) is a mere $14,500. Total.
Workers in the public sector have fared a bit better than their counterparts in the private sector. Traditional pensions, or defined benefit plans, have been the retirement savings tool of choice for employers in the public sector, and they continue to be the best way to provide the most workers with a secure retirement. But for almost a decade, the right-wing has conducted an all-out assault on the pensions public sector workers earned and paid for with every paycheck, many lacking access to Social Security.
We can do better. After a life of working hard and playing by the rules, Americans deserve to be able to retire with dignity and security. I encourage the DNC to adopt a platform that protects the retirement security that exists for public sector workers through pensions and promote retirement solutions that will allow all workers to retire securely. There are several design aspects of pensions that we should want all retirement plans to embody:
- Plans should guarantee a reliable retirement benefit for life.
Defined benefit plans are the only retirement system that is designed to provide a regular, pre-determined benefit regardless of how long a person lives. This ensures that aging individuals can cover the cost of basic necessities such as food, housing, and health related expenses.
- Retirement plans should pool risks, be professionally managed, and yield the best returns.
The scale and structure of group accounts such as defined benefit plans allows professional managers to make smarter investments that yield higher returns in the long term. That’s because in group accounts, younger workers who can assume greater risks offset older workers who would otherwise opt for safer investments. In contrast, those with 401(k)-style retirement plans take safer bets on less dynamic investments as they approach retirement to ensure funds are available when they need them. Additionally, a study by the National Institute on Retirement Security found that defined benefit plans are a far more cost-efficient means of providing retirement income than defined contribution plans.
- Plans should protect workers against market fluctuations.
After the financial collapse of 2008, retirement systems across the spectrum took a hard hit. The advantage of a pooled system is that all pension liabilities will never be due at once, so retirees can continue to receive payments during a downturn and recovery. If you were at retirement age in 2008 and vested in a 401(k) or individual market account during those years, you know how much it really does matter that a pension has time to recover. When looking at retirement solutions, we must not leave an individual’s security to the whims of the market.
No matter which way you slice it, pensions are the most cost-effective and reliable way to provide a large number of employees with a secure retirement. Most defined benefit plans provide retirees with a modest monthly benefit. In fact, retirees in Pennsylvania’s public employee retirement system received an average of $25,889 a year in 2014, while retired Oklahoma teachers got by on $19,846.
Public pensions are rebounding post-recession, with the vast majority returning to financial health. A recent study by the Center for Retirement Research at Boston College found that the health of defined benefit public pensions nationwide is up and expected to keep improving. The study found that pensions in 2014 were funded at 74 percent, up from 72 percent in 2012. Researchers project that funding levels will be as high as 80.5 percent by 2018.
The DNC should reject right-wing calls for pension reform. Ideologues like Enron-billionaire John Arnold have led a well-funded attack on defined benefit plans, pushing misinformation in order to sway policymakers toward alternatives that siphon money away from states and workers to the benefit of Wall Street.
In addition to protecting pensions for our teachers, firefighters, and police officers, the DNC should adopt a platform that will provide better access to retirement security for all by using the model of pensions, which are designed to provide a reliable, modest income for life in retirement.