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 educators helping their communities during the coronavirus pandemic.
Here are the top stories from this week:
Kentucky mental health nonprofit can’t escape state pension obligations, appeals court rules by John Cheves. In this article for the Lexington Herald-Leader, Cheves writes about Monday’s decision from a federal appeals court that a mental health nonprofit in Louisville “can’t escape tens of millions of dollars in pension obligations to its workers — and to the beleaguered Kentucky Retirement Systems (KRS)— through a Chapter 11 bankruptcy reorganization in 2013.” The mental health nonprofit in question, Seven Counties Services, is a quasi-public agency that “stopped paying KRS when it filed for bankruptcy protection and moved its 1,400 employees into a defined contribution retirement plan.”As we wrote in February, “employees whose employers leave KRS would see their retirement security devastated, especially if their pension accounts are frozen and they are switched to a defined contribution 401(k)-style plan.” The federal court’s ruling sends the case to the U.S. Bankruptcy Court in Louisville which will take further action.
What’s the Difference Between a Pension Plan and a 401(k)? by Maryalene LaPonsie. In this article comparing the differences between defined benefit plans and 401(k)s, LaPonsie makes several misleading claims about public pensions. The author first incorrectly states that pensions are “an expensive promise,” which is false because defined benefit pensions can provide benefits “for about half the cost of 401(k)-style defined contribution plans,” making them a cheaper and better option for public employees’ retirement security. LaPonsie then cites a study from the Pew Charitable Trusts which supposedly discovered that “state pension systems had a $1.28 trillion funding gap in 2017.” This study should be taken with a grain of salt given that Pew Charitable Trusts has a notable anti-pension bias.
What The Wild Stock Market Means For Public Pensions by Liz Farmer. In this article for Forbes, Farmer argues that pension plans will have to “lean on taxpayers to help” during the current coronavirus-induced recession. Farmer conveniently leaves out several facts that would contradict her argument. The first one, as we’ve covered before, is that “following an initial plunge in March, the stock market has mostly recovered all of its recent losses, meaning most public pensions will still be in solid financial shape owed to their mix of high and low-risk investments spread out over a longer period of time.” The second is that Farmer relies on a report from Moody’s Investors Service which claims that “investment returns… have almost certainly fallen well short of targets,” when Moody’s (similar to Pew) has a similar history of anti-pension bias. Third, Farmer cherrypicks just two places in the entire country where politicians have underfunded pensions at the expense of workers to argue that all public pensions are in a state of crisis. This couldn’t be further from the truth because, as we’ve debunked before, “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.”
Be sure to check back next week for the latest news in the fight for a secure retirement!