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:
Senate bill would end Florida’s state pension option for new employees by Jim Saunders. Saunders reports on the Florida State Senate’s Governmental Oversight and Accountability Committee passage of Senate Bill (SB) 84. SB 84 would close the Florida Retirement System (FRS) to all newly hired public employees as of July 1, 2022, and enroll them into a defined-contribution plan. This would be detrimental both to the state’s finances and to public employees’ retirement security. Costs for the state would increase because closing FRS to future public employees would cut off a dedicated revenue source for the plan, ultimately making it more expensive for Florida to maintain it in the long run. Defined-contribution plans also do not offer the same amount of security in retirement as defined-benefit pensions, which are more cost-effective by collectively pooling risk and investing for the long-term. The bill will now head to an actuarial analysis before it can be considered by the full State Senate when Florida’s state legislative session begins on March 2.
States of Innovation: Securing Public Pensions by Greg Mennis. The Pew Charitable Trusts (a longtime opponent of public pensions) published this misleading article last Friday about the supposed need to “secure” public pensions. Mennis makes several claims that do not hold up to scrutiny on public pensions. First, Mennis writes that “most states haven’t adequately funded their obligations.” This is not true as the vast majority of public pensions are well-funded, and according to NCPERS, states’ funded status increased to 75.1% in 2020. Second, Mennis makes the misleading statement that “without sustainable funding, the cost of retiree benefits can mean less money is available for schools, roads, or public safety.” That statement is also incorrect, as NCPERS has found that investment earnings provided 71% of public plans’ revenue in 2020. The National Association of State Retirement Administrators (NASRA) has also found that state and local governments spent just 5.2% of their direct spending on pensions in 2018, showing that spending on pensions takes up little overall spending for state and local governments. Finally, Mennis notes that there is a “50-state pension funding gap” worth “$1.24 trillion,” which confuses readers into thinking that there must be an insurmountable pension crisis we have to solve. Mennis’ argument is also (shockingly, we know) not true. Ranking states based on funded status ignores a few facts about what an unfunded liability is. An unfunded liability simply means that there is a “difference between the total amount of benefits owed to ALL current employees & retirees and the value of the financial assets the pension plan manages.” The system never needs all of that money at once because pensions have several decades to earn a return on their investments, thus ensuring they will always have enough assets to pay out benefits. Given Pew’s history of trying to cut pension benefits for hard-working public employees, their claims should be taken with a (very generous) grain of salt.
Defined benefit pensions crucial for economic health by Ted Toppin. Toppin writes for Capitol Weekly in California about how spending from defined-benefit pensions benefits the state’s entire economy. The author cites research from the National Institute on Retirement Security showing that state and local pension spending in 2018 supported over 395,000 jobs and $76.7 billion in total economic output that year. “The plain fact is that California taxpayers get a significant return on the money state and local agencies pay into their workers’ pensions,” Toppin writes. “Every dollar put in ultimately generates $6.40 in economic output across the state.” The impact of pensions in California is just one example of how pensions are a critical source of economic stimulus for states and communities across the country.
The retirement plans of many Americans have been delayed by the pandemic, survey says by Grace Kay. According to a recent survey in Business Insider, the coronavirus pandemic has negatively impacted many workers’ ability to retire. The survey from Kiplinger and Personal Capital found that over 40% of retirement savers “said the pandemic has made them less confident they will have sufficient funds to retire.” A third of the survey respondents also reported that they had made a distribution or loan from their retirement account, which shows the financial toll many have faced during the pandemic-induced economic crisis. It also illustrates that there are still too many economic challenges for most workers to adequately save on their own for retirement. The article mentions that “nearly half of Americans between the ages of 32 and 61 do not have any retirement savings and most of those that do have savings under $21,000, according to a 2019 study from the Economic Policy Institute.” The widespread lack of retirement savings has also forced many retirees to rely on Social Security, as “the Center on Budget and Policy Priorities reported that 20% of retirees depend on Social Security to make up at least 90% of their income, while half relied on the funds for over 50% of their income” last year. Thankfully, most public employees can count on their defined-benefit pensions to ensure they retire with dignity and security. Their pensions deserve to be protected.
Be sure to check back next week for the latest news in the fight for a secure retirement!