Welcome to April’s first edition of This Week in Pensions! We have gathered the best stories about pensions and retirement security from the previous week. This is the news you need to know in the fight for a secure retirement.
Here are the top stories from this week:
No pay raises. Kentucky lawmakers pass a one-year state budget with no new spending. by John Cheves and Daniel Desrochers. On Wednesday, the Kentucky General Assembly approved a one-year budget for the state that includes a number of good provisions for public pensions, including fully funding contributions for the Kentucky Retirement Systems and the Teachers’ Retirement System of Kentucky. The budget provides “pension assistance for ‘quasi-governmental’ agencies that work with state government, such as local health departments, regional universities and mental health nonprofits.” The budget also includes money to help these groups with their pension contributions and “caps contribution levels at 49 percent of payroll for another year rather than let rates rise to 93 percent.” The measure now goes to Gov. Andy Beshear, who can line-item veto parts of the budget or the whole budget, giving lawmakers until April 15 to override potential vetoes.
New Law Gives More Financial Protection To Police And Firefighters by CBS4. CBS4 reports from Denver, Colorado on a new bill that will give “firefighters and police officers killed or injured in the line of duty more protection.” Earlier this week, Gov. Jared Polis signed House Bill 20 – 1044 into law, which “gives the Colorado Fire and Police Association Pension Board more flexibility in adjusting contributions. That in turn makes it easier to help with financial needs those first responders and their families encounter.”
Coronavirus is Making the Public Pension Crisis Even Worse by Mary Williams Walsh. Walsh, a long-time opponent of public pensions, is the latest skeptic utilizing the current market downturn driven by the coronavirus to argue that public pensions are facing a crisis. Walsh cites last week’s report from Moody’s Public Finance which claims that public pension funds will supposedly near a $1 trillion shortfall by the end of the fiscal year. This argument, as we’ve noted before, makes several leaps of logic, first by assuming that the stock market will continue to spiral downwards throughout the year (the market could stabilize and start increasing later this year, cutting current losses). Second, because of the way pension accounting works, “any annual losses or gains are smoothed out over several years so that governments don’t get a huge jump in their annual pension bill.” Third, public pensions themselves are not in a crisis. Pension skeptics like Walsh often point to a few states with underfunded public pensions to claim that all public pensions are in a dire crisis. These states are the exception, not the norm, and most public pension plans are on a solid financial footing to offer benefits to retirees during both economic upswings and downturns.
Pension Funds Will Take a Big Coronavirus Hit by Aaron Brown. In yet another article that employs numerous scare tactics, Brown argues in this piece for Bloomberg that because of the coronavirus, public pensions will see their unfunded liabilities skyrocket, supposedly threatening retirement security. As we’ve previously written, an unfunded liability means that at “a specific point in time, the pension plan does not have the full amount of money it will need to pay out ALL of the retirement benefits it will owe in the future to ALL of its current and former employees.” This complete payout of benefits is something that has never happened before. Brown also writes that “all benefits for active employees, plus all benefits for everyone in the near future, will have to come from employee or state contributions” because of the coronavirus driven market downturn. This is false because active employees will not need to collect pension benefits until they retire. And the notion that all benefits will have to come from employee or employer contributions is false – on average, investment earnings and employee contributions make up 75 cents of each dollar in a pension fund.
Be sure to check back next week for the latest news in the fight for a secure retirement!