Welcome to the latest edition of This Week in Pensions! We have gathered the best stories about pensions and retirement security from the previous week. This is the news you need to know in the fight for a secure retirement.
Lawmaker calls for cost-of-living adjustments for state pensioners by The Journal Record. Oklahoma State Representative Sean Roberts said that he will push for a bill at the next legislative session, set to begin February 2022, that will provide a cost of living adjustment (COLA) for state retirees. COLAs were last issued for state retirees in 2020— granting 2%-4% adjustments depending on how long people had been retired. The COLA issued in 2020 was the first one given since 2008, and over 113,000 retired public employees saw an increase in their monthly pension benefits. Representative Roberts says that new raises are needed to help with inflation seen anywhere from gas stations to grocery stores.
Record returns not enough to ensure public pension stability by Michael Katz. Pension funds across the country have returned at record rates over the past year. In fact, the average rate of return was an astounding 27.5% during the fiscal year 2021. Since it is the holiday season, it’s no surprise that some pension grinches have decided to continue to push their anti-pension rhetoric. Reporting for Chief Investment Officer, Katz cites a recent report from the Equable Insitute. In the report, Equable “forecasts that the aggregate funded ratio will increase to 80.8% in 2021 from 70.9% in 2020.” At the same time, the report states, “compared to a 100% funded ratio target with no funding shortfall, the numbers are remarkably mediocre considering such a historic investment year.” It’s unfortunate that Equable sees a 10% increase in funding status as mediocre, and we thought it is important to note two things. First, as we’ve reported before, an unfunded liability is the difference between the total amount of benefits owed to ALL current and active public employees and the value of the financial assets the pension plan manages. This means that at a specific point in time, the pension plan does not have the full amount of money it will need to pay out ALL of the retirement benefits it will owe in the future to ALL of its current and former employees. Pension funds will never need to pay out all of the benefits owed to public employees at one time. Second, pension funds are investing for the long-term. One year of strong returns is excellent news and should be celebrated as such. In a year when returns aren’t as good, it’s important to remember that because pension system investing is structured on historical performance over a ten, twenty, or thirty-year horizon, they are better insulated to weather those lower returns. Public pension funds will continue focusing on the long-term, whether a plan has great returns or not. And Equable should be celebrating the funded status of plans increasing, not referring to them as mediocre.
Be sure to check back in next Friday for the latest news in the fight for a secure retirement!