Welcome to May’s first edition of This Week in Pensions! We have gathered 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.
Before we dive into our top stories from this week, check out some stories of public employees helping their communities during the coronavirus pandemic:
- ICYMI: First responders continue front line fight despite ‘constant worry’ about coronavirus
- ‘Virtual variety show’ brings joy to care center residents
- Tucson peer support keeps members positive, moving amid coronavirus limitations
- Recovering COVID-19 patients stress importance of social distancing
- This teacher paid his students’ utility bills with his stimulus check. He’s not the only one donating the money
- Palm Beach County teacher raises money to buy laptops for students in need
Here are the top stories from this week:
Public pensions are not an albatross by Ted Cox & Ameya Pawar. The week after Senate Majority Leader Mitch McConnell suggested states go bankrupt due to the coronavirus pandemic, Cox & Pawar argue that public pensions “are in fact a lifeline for retired public workers and a key source of the economic vitality of areas across the state.” The authors correctly note that “for many public workers like teachers, who don’t pay into Social Security, [pensions are] their only source of retirement income,” making them the only thing guaranteeing a secure retirement. They also “enable retirees to stay in their homes, pay local property taxes, and drive the local economy,” which is critical during economic downturns. Finally, while the vast majority of public pension plans are well-funded, the select few that face funding challenges like Illinois are the exception. While public employees paid into their pension plans with each and every paycheck, politicians in Illinois repeatedly delayed paying the state’s full contribution to the plans, making it more difficult to maintain optimal funding. A pension is a promise, and public employees who risk their lives to keep us safe deserve a secure retirement.
Colorado lawmakers are looking at how to close a $3 billion budget shortfall. Here’s the roadmap. by John Frank. This week, the Colorado General Assembly started “reviewing recommendations from legislative analysts for potential spending cuts across all government agencies” in the state. In this article for the Colorado Sun, Frank writes that a “big ticket item where lawmakers can reduce spending is the state pension, known as Colorado Public Employees’ Retirement Association” (PERA). Reducing spending on pensions is the last thing public employees need during this economic crisis. Just like in Illinois, retired public employees in Colorado do not receive Social Security benefits, making their pension benefits all the more important for staying afloat in retirement. And in Colorado, pension spending provides multiple benefits for the state and its economy. In 2018, expenditures stemming from state and local pensions supported $7.6 billion in total economic output and 51,663 jobs, according to the National Institute on Retirement Security (NIRS).
Free Market Friday: Lives and livelihoods require lawmakers focus on economy by Jonathan Small. In this op-ed for the Journal Record, Small argues that the state of Oklahoma should use federal aid “to reform the teachers’ retirement system and enroll all new teachers in a robust defined contribution plan.” One real example of a state switching all of its newly hired educators to a defined contribution plan shows that this would be a disaster for Oklahoma’s educators. After 17 years of enrolling its newly hired educators in a defined contribution plan, the West Virginia legislature in 2008 “voted to reopen the closed defined benefit pension plan after a study showed that the pension plan offered equivalent benefits at half the cost of the defined contribution plan.” When educators in the state were given the choice between remaining in the defined contribution plan or switching to the defined benefit plan, 78 percent of them decided to move to the defined benefit plan. Finally, Small falsely claims that switching to a defined contribution plan would “help with teacher and talent recruitment in a world where employees are extremely mobile and prefer to change employment regularly.” According to NIRS, 94 percent of state and local employees say “offering a pension is a good tool for attracting and retaining employees.”
U.S. Public Pension Underfunding—Don’t Make the Same Mistake Thrice by Charles E.F. Millard. In this op-ed for Chief Investment Officer, Millard argues that now is not the time for state and local governments to defer on their pension contributions. Millard writes that the main cause of pension underfunding is not a plan’s investment performance, it’s whether or not plan sponsors make their required contributions. Millard also correctly notes that pensions “truly are long-term investors. Their median annualized performance over the last 30 years is about 8.3%, according to the National Association of State Retirement Administrators (NASRA).” This makes them better equipped to survive market downturns and provide security in retirement.
How the Pandemic Is Making the Retirement Crisis Worse — and What to Do About It by Chris Farrell. In this article for Next Avenue, Farrell outlines how the coronavirus pandemic is affecting retirement security. Farrell states that according to Fidelity Investments, “the market downturn of 2020 has caused average 401(k) balances to fall 19% from the fourth quarter of 2019 and average Individual Retirement Account balances to drop 14%.” And before the pandemic, many did not have adequate retirement savings, to begin with, as “roughly 75% of heads of households ages 55 to 65 had almost no chance of being able to fund their retirement needs out of savings before the pandemic.” Pensions are the best vehicle for achieving retirement security because they minimize risk to individual workers, allowing them to have a secure and dignified retirement.
Be sure to check back next week for the latest news in the fight for a secure retirement!