Welcome to this week’s 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.
Here are the top stories from this week:
Kansas’ pension system had one of its best years ever in 2021. Where does it go from here? By Andrew Bahl. In this article for the Topeka Capital-Journal, Bahl highlights the recent investment performance of the Kansas Public Employees Retirement System (KPERS). The system reported a 26.3% rate of return for the 2021 fiscal year, which was its third-highest return in the past 45 years. However, the anti-pension Reason Foundation tried to throw cold water on the news in the article. “Once the current market rebound ends,” a recent piece from the organization claims, “most experts say the long-term funding prospects for state and local pension plans remain poor.” This statement is not true, as pensions are specifically designed to be invested for the long-term and most plans’ funded statuses have remained stable despite the past year’s economic crisis. The Center for Retirement Research at Boston College has found that the average funded ratio for public plans was 74.7% in 2021, and most plans have maintained a funding ratio in that range over the past few years. Policymakers can help sustain their pensions by making their required contributions to the systems, just as public employees do with each and every paycheck. As Bahl notes in the article, KPERS’ unfunded liabilities have decreased since Kansas has tried “to catch the state up on a series of missed payments.”
Committee to look at changing state employee retirement system by Dave Thompson. In North Dakota, an interim Retirement Committee has begun exploring the possibility of converting all newly hired public employees in the state’s pension system from a defined-benefit plan to a defined-contribution plan. While supporters of conversion bill say it as a cost-saving measure, in practice, closing a defined-benefit plan can increase costs to state and local governments by cutting off a dedicated source of revenue. After West Virginia, for example, closed its Teacher Retirement System to newly hired educators in 1991, the system experienced a considerable drop in its funded status, to 25% by 2005. That same year, the state re-opened the plan when it found that it could provide better retirement benefits at half the cost of the defined-contribution plan. After giving educators the option to switch back into a defined-benefit pension, more than 78% chose to do so. Making the required contributions to the plan is the best way to practice fiscal responsibility and ensure a system has optimal funding, not shutting it off entirely to newly hired employees.
Do It Yourself Retirement Savings Require A Reliable, Knowledgeable Partner by Christian Weller. In this piece for Forbes, Weller, a prominent researcher on retirement finances, writes that workers face several obstacles in saving on their own for retirement. For workers without an employer-sponsored retirement plan, being able to save in an individual retirement account (IRA) comes with unique challenges as “setting up, contributing to and investing in IRAs is often complex, creates financial risks and comes with substantial costs.” Increasingly, wealthier households are also the only ones who can commit the financial resources to participate in an IRA. “The share of higher-income earners with incomes above $150,000 with an IRA was 21.3 percent, compared to 6.5 percent of households with incomes between $50,000 and $60,000,” Weller notes. This makes it all the more important to protect defined-benefit pensions for our country’s retired public employees. They provide the retirement security that public employees can count on after serving our communities.
Be sure to check back next week for the latest news in the fight for a secure retirement!