Welcome to this month’s first 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:
Why It’s Harder To Save for Retirement Today Than 50 Years Ago by Cameron Huddleston. In this article for Yahoo Finance, Huddleston covers several reasons why it’s harder for workers to save for retirement now as opposed to a half-century ago. Defined-benefit pensions, for example, are less common now in the private sector. Wages have also barely increased over the preceding decades, making it more difficult for workers to save on their own as they still have to pay for the increasing costs of everyday necessities like healthcare, housing, groceries, and transportation. Finally, people nearing retirement age now also have to contend with higher levels of debt than previous generations. According to Fannie Mae, “Baby boomers who have reached retirement age are more likely to have mortgage debt than homeowners entering retirement in 2000.” Thankfully, however, most public employees still have access to a defined-benefit pension plan, which is crucial for them to retire with the dignity and security they deserve after a lifetime of serving the public.
Retirement has become more frustrating than a Rubik’s Cube. Here’s how to solve the puzzle by Dan Doonan. Doonan, the Executive Director of the National Institute on Retirement Security (NIRS), writes for Market Watch about NIRS’ recent report on the challenges facing Americans as they prepare for retirement. The first issue Doonan highlights is the difficulty for many younger Americans to start saving for retirement, as “two-thirds of millennials have saved nothing for retirement.” Starting to save for retirement later in life makes it more challenging for these individuals to catch up to their ideal retirement savings later on in their working years. The second is that healthcare and housing costs are drastically increasing, cutting into people’s ability to afford to retire. One out of every seven older Americans needing long-term care will spend more than $250,000 on it, for example, and “46% of older Americans had mortgage debt in 2016 compared to 24% 30 years ago.” Doonan makes it clear that policymakers have to find solutions to these problems, and we know that protecting pensions is one of the ways public employees can prepare for retirement and meet unexpected costs like healthcare and housing when they do eventually retire.
10 Ways to Close Public Pension Funding Gaps by Michael Katz. In this article for Chief Investment Officer, Katz covers a recent report from the National Conference on Public Employee Retirement Systems (NCPERS) on how state and local governments can close gaps in pension funding. While the vast majority of public plans are well-funded, there are still steps that state and local governments can take to ensure they do not leave any sources of potential funding on the table. Major corporations, NCPERS notes, often utilize existing tax loopholes to avoid paying their fair share in taxes, and policymakers can close these loopholes to secure more tax revenue. State and local governments can also explore monthly employer contributions, which would make employer contributions a part of payroll just as employee contributions are. As many state and local governments have taken a hit to other sources of revenue during the coronavirus-induced economic downturn, closing tax loopholes and exploring monthly employer contributions are two ways their budgets can recover following this crisis.
Tool shows how much money is locked out of Michigan classrooms because of $40 billion pension debt service by Scott McClallen. In this article for the Center Square, McClallen cites the Michigan Public School Employees Retirement System (MPSERS) to perpetuate a myth from the anti-pension Reason Foundation that unfunded liabilities cut into education funding. McClallen falsely claims that the system has to spend thousands of dollars per student in order to meet its unfunded liabilities. Reputable research shows this argument to be incorrect. According to a report from NCPERS, public spending on pensions does not crowd out public spending on education. In Michigan, according to the below trendlines from the report, spending on education is six times greater than what it is on pensions.
Be sure to check back next week for the latest news in the fight for a secure retirement!