Welcome to this month’s last 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:
How 401(k) accounts killed pensions to become one of the most popular retirement plans for U.S. workers by Nathaniel Lee. Lee’s article for CNBC on the history of the 401(k) accurately pinpoints why the private-sector has shifted away from offering defined-benefit pensions over the preceding decades, but recent research contradicts his claim of most workers viewing the 401(k) as a “popular” option to save for retirement. Lee is correct when he writes that the 401(k) was born after Congress passed the Revenue Act in 1978 and that it was originally intended to give workers a “tax-advantaged way to defer compensation from bonuses or stock options” (which was mostly utilized by wealthier individuals to save money on their taxes). However, most people believe in the value of offering pensions to achieve a secure retirement, as a new survey from the National Institute on Retirement Security (NIRS) shows 77% of Americans support offering pensions to all workers.
Closing Wage Gap Would Boost Retirement Security for WY Women by Eric Galatas. On Women’s Equal Pay Day this past Wednesday, Galatas wrote for the Public News Service about how the women’s wage gap in Wyoming affects female public employees’ retirement security. In the article, Galatas quotes Anastasia Marchese, the state coordinator for the Wyoming Coalition for a Healthy Retirement (WCHR), who said pensions are tied to a worker’s salary. “If I’m a woman in Wyoming making 70 cents for a dollar that a man makes, that percentage of a retirement match from the state is based on my pay,” Marchese said. “So, if I’m paid less, I’m getting less retirement.” She also illustrated the importance of protecting pensions for Wyoming’s economy. Since pensions offer guaranteed income, retired public employees can stimulate the economy with spending in their local communities, as “every dollar paid out to retirees in Wyoming creates $1.12 in economic activity.” Marchese noted, “when we say ‘protect pensions for women,’ that ultimately translates back into protecting pensions for all workers, which essentially provides lots of economic stimulus in their own communities.”
1.1% return on $9B NHRS fund was miserable by Laura Z. Morgan. In this letter to the editor submitted on behalf of the New Hampshire Retirement Security Coalition (NHRSC), Morgan responds to a letter to the editor written by Nick De Mayo on the New Hampshire Retirement System’s (NHRS) investment performance from last year. In De Mayo’s letter, he argues pension benefits should be reduced as a result of last year’s rate of return. However, Morgan sheds light on how this misguided solution ignores the sacrifices public employees in the state have already made to shore up NHRS’ funding. “It seems De Mayo is not aware that, in 2011, enormous cuts were made to the benefits of all working public employees and any newly-hired employees,” she writes. “These changes created a 3-tiered system in NHRS, with different benefits provided to members depending on how many years they had in the system as of Jan. 1, 2012.” When these cuts were made, the state also lowered employee representation on the NHRS Board of Trustees by 50%, which has affected investment assumptions as “research shows that systems perform better when there is significant employee input over decisions, including investments.” Finally, Morgan notes “only 20% of what communities pay toward retirement costs for public employees actually goes toward the benefit” and that “80% is making up for mistakes made in the past,” showing that the vast majority of funding towards retirement costs in New Hampshire is directed at addressing past underfunding from the state. NHRS employers also “pay very little to the actual cost of the benefit contributing only 2.7%, while the national average is 5.9%.” While “De Mayo is right that investment performance is critical to ensuring predictable costs to communities,” Morgan states, “cutting benefits is not the solution.”
House lawmakers unveil long-awaited plan to address pension shortfall by Lola Duffort. This Wednesday in Vermont, the House Government Operations committee introduced a proposal based on recommendations State Treasurer Beth Pearce made in January that would cut public educators’ pensions to address the system’s unfunded liability. The proposal introduced on Wednesday was drafted behind closed doors without input from the public employees who would be affected by the potential changes. It’s critical that all parties invested in the fund, including the public employees, have a seat at the table when it comes to negotiating proposed reforms to the system.
Be sure to check back next week for the latest news in the fight for a secure retirement!