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:
Pensions In The Sunshine State: Avoiding Unintended Dark Clouds by Dan Doonan. Doonan, the Executive Director of the National Institute on Retirement Security (NIRS), writes on the potential consequences of Florida lawmakers passing Senate Bill 84. This bill would close the Florida Retirement System (FRS) to nearly all newly hired public employees and place them in a defined-contribution plan. Doonan lists several reasons why enacting SB 84 would be a mistake for the state and its workforce. First, a poll from NIRS in 2019 found “nearly all state and local workers (93 percent) said that pensions are incentives for long public service careers, and 94 percent agreed that a pension is a good tool for attracting and retaining employees.” Cutting pensions, then, would make it more difficult for the state to recruit and retain qualified public employees. Secondly, Doonan notes that several states which closed their defined-benefit plans to new hires ultimately experienced higher costs by closing off a dedicated source of revenue. The states of West Virginia, Michigan, Alaska, and Kentucky serve as “cautionary tales” because they have all closed plans to new hires and saw their unfunded liabilities increase, and in West Virginia, the move proved so unpopular the state eventually reopened its pension plan. Finally, Doonan illustrates there is no need for reforming the FRS because it “has a long history as one of the best managed retirement systems in the country,” with “employees and investments covering nearly three-fourths of the costs.” Florida legislators would be wise to heed Doonan’s advice and protect public pensions in the state.
Speaker Krowinski tables pension reform plan by Vermont Business Magazine. Today in Vermont, State House Speaker Jill Krowinski announced she was abandoning a plan that would have cut public employees’ pensions to address the state’s unfunded liabilities. The proposal, which was drafted without input from the public employees who the changes would impact, would have required public employees to increase their contributions, require them to stay in the workforce longer, and reduce or eliminate the cost-of-living adjustments (COLAs) they depend on to make ends meet in retirement. In her remarks today, Krowinski also shared that she intends to set up a task force that will further study public pensions in the state. We hope going forward that Vermont will heed the words of State Rep. Mike Mrowicki who wrote in February that “the best next step is to bring together all the stakeholders in this situation and find a solution that is derived from all the pertinent stakeholders,” including the public employees participating in the system.
A New Retirement Security Framework Is Required to Meet Unprecedented Challenges Posed by “Peak 65” Moment by the Alliance for Lifetime Income. The Alliance for Lifetime Income published a report on Tuesday about the current state of retirement security in the United States. While the report is correct in that America faces a retirement security crisis, its notion that “public sector pensions are under-funded and at risk of failing to deliver on their promises” does not hold up to scrutiny. According to the National Conference on Public Employee Retirement Systems (NCPERS), the vast majority of public pensions are well-funded, with an average funded status of 75.1% in 2020. The Alliance for Lifetime Income’s report also cites misleading research from the Pew Charitable Trusts and the Equable Institute in its analysis to support their claim that pensions are “under-funded,” which is deceiving since both organizations routinely publish biased studies attacking public pensions.
Will you really run out of money during retirement? By Liz Weston. Weston summarizes a common fear many workers have; the worry of running out of, or not having enough, money to meet their needs in retirement. According to Weston, this concern has roots in reality, as “a 2012 paper for the National Bureau of Economic Research found 46.1% of older adults died with less than $10,000 in financial assets.” One of the advantages of defined-benefit pensions is that they provide a guaranteed monthly benefit for life, ensuring that retirees have a lower risk of falling into poverty in their golden years.
Be sure to check back next week for the latest news in the fight for a secure retirement!