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:
Shifting burden of retirement saving and investing to public employees is costly by the Wyoming Business Report. In this brief published on Monday, the Wyoming Business Report included our releasing a report last month alongside the Wyoming Coalition for a Healthy Retirement (WCHR) about the negative consequences of converting new public employees into a defined-contribution retirement plan. Those consequences include costing the state more in the long run, as the states that have closed their defined-benefit plans experienced a subsequent increase in their unfunded liabilities, as well as harming recruitment and retention efforts for dedicated public employees to serve the state. “Wyoming’s public employees, including firefighters, dedicate their lives in service to their communities while earning less than they could in the private sector,” Kevin Reddy, president of the Federated Fighters of Wyoming, said. “The promise of a defined-benefit pension plan so that public employees can retire with dignity is the least we can do.”
Overhaul to Texas state government employees’ retirement accounts advanced out of Legislature by Shawn Mulcahy. Just before the Texas legislature adjourned for its regular session last Sunday, the State Senate passed Senate Bill (SB) 321, which would close the Texas Employees’ Retirement System (ERS) to newly hired public employees and switch them into a cash-balance retirement plan. After the State House passed SB 321 last Wednesday, the bill was sent to a conference committee, but the State Senate ultimately decided to pass the State House’s version of the bill as written. Cash-balance plans do not offer the same retirement security for public employees as defined-benefit plans because defined-benefit pensions have a structured formula that enables them to provide a modest, guaranteed benefit when an employee retires. In a cash-balance plan, depending on how it is organized, an employee will pay into individual retirement accounts with pay credits and service credits. When they retire, these credits then determine their retirement income, which can be withdrawn as a lump sum or annuity.
Don’t judge me because I collect a pension. I earned that money by Margaret Hamilton. In this letter to the editor for the Los Angeles Times, Hamilton writes that retired public employees such as herself deserve their pensions because they have earned them through a career in public service. “I have a pension and sometimes encounter people who express deep resentment toward retirees like me,” Hamilton states. But, as she accurately notes, “I worked in the public sector for less than I could have earned in the private sector.” This makes Hamilton’s pension a critical source of security for her in retirement, enabling her to “live frugally” during her golden years.
How Well-Funded Are Pension Plans in Your State? By Janelle Cammenga. In a piece for the Tax Foundation, Cammenga parrots a false narrative from Truth in Accounting which ranks each state based on its unfunded liabilities. As we wrote this week, the notion that a pension plan has to be at a 100% funded status to be considered in solid fiscal health is deliberately misleading as unfunded liabilities are not structured in the same manner as household debt is. An unfunded liability indicates that a system does not have enough assets to pay benefits to all current and retired public employees, and the system will never need all of that money at one time. For a public employee who will devote their working lives in service to their communities, they will pay into the system for decades with each and every paycheck, which will then allow the fund to gain optimal investment earnings over a longer period of time. Comparing states based on their unfunded liabilities, then, is not necessarily an accurate way to frame a pension plan’s fiscal health.
Be sure to check back next week for the latest news in the fight for a secure retirement!