Welcome to this month’s final 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:
Retirement System Urgently Needs Fixing by Kim Blanton. In this blog for the Center for Retirement Research at Boston College, Blanton covers how the current retirement system in the United States is failing most workers. Blanton highlights that almost half of all private-sector workers at any time are not currently enrolled in an employer-sponsored retirement plan. And there are large gaps between high and low-income households in saving for retirement, as 75 percent of high-income households have savings in a 401(k), compared to just 21 percent of low-income households. Blanton’s message is clear: there is a retirement security crisis facing our country, and we must do everything we can to ensure that workers retire with security and dignity.
Collapse of three-legged stool threatens retirement security by Mary Beth Franklin. Retirement planners say that for many workers to retire with security they need to receive income from the three-legged stool of Social Security, an employer-provided retirement plan, and personal savings. Franklin writes for Investment News about a recent report from the National Institute on Retirement Security (NIRS) which shows that just 6.8 percent of current retirees receive income from all three of these sources in retirement. This makes it difficult for retirees to afford the rising cost of living expenses, including everyday necessities and healthcare, which are “often the largest single expense faced by older Americans,” Franklin writes. Protecting the pension leg of the three-legged stool is critical for retirees so they do not slip into poverty.
COVID-19’s Effect on Retirement Savings Could Be Long-Lasting by Rebecca Moore. In this article for Plan Sponsor, Moore writes on the negative impact the coronavirus-induced economic recession has had on retirement savings. According to a new study from Edelman Financial Engines, 26 percent of respondents said they withdrew money from retirement or savings accounts during the economic crisis. Of those who withdrew money, 51 percent said they used the money to pay their bills, and 39 percent said they gave the money to a friend or family member who needed it. As the unemployment rate is more than double of what it was before the pandemic began, this damage to retirement savings will be challenging to reverse, and it is more evidence that public pensions must be protected because they guarantee a stable income in retirement.
Best and Worst States for Pensions by Joel Anderson. In this article for Yahoo Finance, Anderson ranks the “best” and “worst” states for public pensions based on their unfunded liabilities. As we’ve written before, ranking states based on their funded status is highly misleading. An unfunded liability is merely the difference between “the total amount of benefits owed to ALL current employees & retirees and the value of the financial assets the pension plan manages.” A pension system never needs all of that money at once because a fund has a long time to earn investment returns off of what employers and employees contribute to it. Furthermore, each pension plan provides a Comprehensive Annual Financial Report (CAFR) that shows the vast majority of retired public employees stay in the state they worked in during their career, which means they are reinvesting their pension benefits into their local economies. Stories like this one are best viewed skeptically compared with the facts about public pensions.
Be sure to check back next week for the latest news in the fight for a secure retirement!