Welcome to this week’s edition of This Week in Pensions! This is the news you need to know in the fight for a secure retirement.
Before you dive into our top stories from this week, check out some stories of public educators helping their communities during the coronavirus pandemic.
Here are the top stories from this week:
CT State Employees Get Scheduled Raise Amid Economic Turmoil by Ritch Scinto. In this article published last week for Patch, Scinto criticizes the 2017 agreement between the state of Connecticut and the State Employees Bargaining Agent Coalition (SEBAC) to shore up the state’s budget. As part of the agreement, wages for state employees were frozen between 2016 and 2019, and newly hired state employees were placed in a less secure hybrid retirement plan instead of a traditional defined-benefit pension. In exchange for foregoing wages for years and more secure retirement, the state government agreed to a 3.5 percent pay increase for state employees this year. Public employees across Connecticut have already sacrificed more than enough for the state government; this headline from a news outlet critical of public pensions which implies that state employees are receiving a pay raise in the middle of an economic crisis without any conditions attached is simply not true and lacks context.
Montana Pensions Face Risk of Fiscal Distress in Recession by Michael Katz. Katz writes for Chief Investment Officer about how the anti-pension Pew Charitable Trusts recently conducted stress tests of Montana’s two largest public pension funds, which supposedly showed that they will face a “real risk of fiscal distress” during the current economic crisis. Pew’s analysis of Montana’s public pensions should be taken with a grain of salt, however. As we’ve written before, “professionals who manage public pension funds” regularly conduct stress testing to “adjust the expected rate of return, determine the actuarially required contributions, and set other policies.” When these professionals stress test pension funds, they acknowledge that “long term investment results have much less variance than short term results.” Pew, on the other hand, conducts stress testing by focusing only on “times when the pension plan’s investment returns fall significantly below expectations,” which creates “biased results.”
Pew Report Explores 50-State Pension Funding Gap in 2018, Management Practices Amid Downturn by Tatiana Follett. Speaking of Pew…last month, the organization released a new report on the “50-state pension funding gap,” which examines how well each state’s public pensions are supposedly funded by comparing their unfunded liabilities. However, only using a plan’s unfunded liability to evaluate its fiscal health is incredibly misleading. 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 is something that has never happened before because, for a current public employee, “the pension plan in which she participates has twenty years to earn investment returns on the contributions to her pension and may then have another twenty years over which to pay out those benefits. If the pension fund today only has 85 percent of what it will owe her, that does not mean there is a pension crisis because the fund has a long time to earn investment returns and then pay out its obligations.”
Unfunded Pension Liabilities by Ryan Gosha. In this article for Medium, Gosha falsely claims that, because of unfunded pension liabilities, the sky will collapse and flatten everyone and their grandmother with financial ruin. Gosha relies on the same flawed analysis of unfunded liabilities that Pew used in its “50-state pension funding gap” report, and also states that pension benefits are “too generous” and that “some people choose to work in government just for the pension benefits.” These statements are false for several reasons. Most public employees retire with a modest pension after a career of service, as the median public pension benefit in 2018, according to the Pension Rights Center, is $22,546. Retirement experts estimate that you “need 80% of your pre-retirement income after you retire” to have a secure retirement, so this amount is not a high figure compared to the annual mean wages for state government employees and local government employees (especially considering these employees could earn more working in the private sector). Finally, public employees work in the public sector out of a desire to serve their communities, not because they want “too generous benefits.” According to the National Institute on Retirement Security (NIRS), “state and local employees place a high value on serving the public and their community” and “the vast majority (89 percent) of state and local employees are satisfied with the ability to serve the public aspect of their job.”
Be sure to check back next week for the latest news in the fight for a secure retirement!