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 employees helping their communities during the coronavirus pandemic.
Here are the top stories from this week and last week:
October is National Retirement Security Month from the National Association of Government Defined Contribution Administrators, Inc via GlobeNewswire. National Retirement Security Week was conceived by the National Association of Government Defined Contribution Administrators and has been observed during the third week of October every year since 2006. In the past, NAGDCA has worked with Congress to pass resolutions to recognize the annual observance, and this year they’ve decided to expand from a week to a month. This first Retirement Security Month “asks Americans to be aware of their financial standing with regard to retirement—and employers to make every effort to help them take the steps necessary to adequately prepare for their financial security in retirement,” says Matt Petersen, NAGDCA Executive Director. He continues, “Further, nearly a quarter of public sector employees are ineligible for Social Security and employer pensions are rare outside the public sector; where available, they’re often less robust than they once were. Clearly, Americans need to be actively engaged in preparing for retirement, and they need all the help we can give them. This requires much more than a single week a year of focused attention.” NPPC is looking forward to observing the first-ever congressionally-endorsed Retirement Security Month, so make sure to like us on Facebook and follow us on Twitter for infographics, articles, and the latest research pertaining to retirement security.
Mitigating COVID-19’s catastrophic impact on retirement readiness by Spencer Williams. The Covid-19 pandemic had immediate and cataclysmic effects on the worldwide economy. While the markets have largely bounced back, there has been lasting damage done to the careers and livelihoods of over 50 million Americans. Not only have the unemployment rates skyrocketed, but the ensuing financial hardships and uncertainty have upended the retirement prospects of many Americans, most of whom were already on shaky ground when it comes to adequately preparing for retirement. As we’ve detailed at length in other posts and materials, 401(k)s are not the most secure form of saving for retirement. In this piece for Employee Benefit Advisor, Williams elaborates on how the cash-out option of 401(k)s was, even pre-pandemic, a problem. But now, with the CARES Act’s extra $600 a week provided in unemployment running out at the end of July, “it is understandable that 401(k) savings could look like an attractive source of emergency liquidity. However, given the long-term damage that cash-outs inflict on retirement outcomes, plan sponsors and recordkeepers should take this opportunity, as fiduciaries, to educate their current and terminated participants about the importance of tapping into their 401(k) savings only as an absolute last resort.”
Policies That Will Help U.S. Dig Out of Massive Debt by Brian Wesbury. In his piece for Real Clear Politics, Wesbury proposes some ways to defray the costs of the Covid-19 pandemic and lessen the burden of debt for coming generations. A noble goal, but Wesbury immediately discredits himself by suggesting taxpayers demand that states move employees from defined-benefit plans to defined-contribution plans. Part of his reasoning is that the private sector has already done it, so that’s reason enough to deprive hardworking public servants of a secure retirement. Not only that, but the data just isn’t there to suppose Wesbury’s argument. As we’ve seen time and again, states that switch to defined-contribution plans from defined-benefit plans spend more money to provide less retirement security for their employees. Wesbury should study up on the lessons learned by West Virginia and Michigan, which both ended up switching back to defined-benefit plans after making the initial change to defined-contribution plans. If we are talking about the long term economic security of our country, it’s important for pensions to remain both intact and well-funded.
America’s Racial Wealth Gap In Retirement Savings by Kelly Anne Smith. For many Americans, this summer has been a time of reckoning with the glaring racial inequalities in our county. Unfortunately, institutionalized racism has made its lasting mark on education, health care, housing, and the economy. With structural racism running so deep in our society, it’s no surprise that we see a prominent racial wealth gap in Americans’ retirement security. Smith’s article in Forbes cites many different organizations’ research which clearly shows the staggering difference in wealth, income, savings, and credit between white and non-white Americans. “The wealth gap is the product of centuries of inequality and racism that has grown too large to be impacted significantly by individual actions, achievements or choices,” writes Dion Rabouin, markets editor at Axios. Interestingly enough, careers in public service that provide a defined-benefit pension result in smaller racial gaps in retirement inequality, particularly for black women. Instead of looking to individuals to pull themselves up by their proverbial bootstraps, Smith argues that change needs to come from the top down. Until our government decides to help develop and invest in Black communities and communities of color, she says there is little hope of closing the retirement savings racial wealth gap.
Be sure to check back next week for the latest news in the fight for a secure retirement!
