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.
Derek Schmidt calls for using surplus to pay down $1 billion in KPERS debt, saving millions in long run by Jason Tidd. This week, Kansas Attorney General Derek Schmidt, the Republican frontrunner challenging Democratic Governor Laura Kelly in this year’s election, encouraged lawmakers to dedicate at least $1 billion of the state’s $2.9 billion budget surplus into the Kansas Public Employees Retirement System (KPERS). “The bottom line is we have a rare and unprecedented opportunity to fix this long-term pension debt problem that’s accumulated over a generation in Kansas, to shore up the system for current and future retirees, to wipe a huge chunk of expensive state debt off the books,” Schmidt said in a phone interview with The Topeka Capital-Journal. The pension debt Schmidt is referring to stems in large part from the failed income tax cuts made by former Governor Sam Brownback in 2012. To shore up the state’s budget, lawmakers decided to skip a $100 million payment to the state’s public pension fund. In 2017, state lawmakers voted to reverse the deep tax cuts Brownback enacted, and in 2019 under Gov. Kelly, Kansas’s conservative legislature passed SB 9 that sought to pay back $115 million borrowed from KPERS and also added $51 million at the end of the legislative session. An assessment from KPERS determined that adding $1 billion by the end of the fiscal year “translates into improved funding immediately and reduced employer contributions in the coming years.” The proposal would save $75 million in state and school contributions next fiscal year, with $403 million in taxpayer savings over five years.
A pension reform proposal has been released. Labor leaders and top lawmakers are behind it by Lola Duffort. This week, a special legislative task force in Vermont proposed a highly anticipated package of recommendations to reform the state’s ailing pension system. The task force of lawmakers and representatives from the Vermont-National Education Association, the Vermont State Employees Association, and the Vermont Troopers Association was formed in mid-2021 after Vermont House Speaker Jill Krowinski suspended a controversial pension reform proposal in April that faced backlash from labor and legislative leaders. The new package will land in the Senate Government Operations committee before it sees a vote, but the significant momentum behind it has union leaders feeling optimistic. “The state has never made a commitment like this before to the pension systems for both state employees and teachers,” said Andrew Emrich, a VT-NEA representative on the task force. The plan sees concessions on both sides: The state is offering a one-time contribution of $200 million into the system on the condition that employees agree to benefit reductions and contribution increases. This compromise does not address the call for recurring, dedicated revenue sources that union leaders believe are necessary to the system’s overall health, as lawmakers, and Governor Phil Scott, remain vehemently opposed to creating new taxes. Concessions aside, this is a significant step forward for the legislature that has been struggling to find a solid plan to ensure retirement security for their public workers.
DB Plans Far More Cost-Efficient Than DC Plans, Research Finds by Michael Katz. This month, the National Institute on Retirement Security (NIRS) released a new report, “A Better Bang for the Buck 3.0.” This is the third in a series of studies that intricately compare the cost vs. return between defined-benefit and defined-contribution plans, following up on the initial studies in 2008 and 2014. The report, which states that, “A typical pension has a 49 percent cost advantage as compared to a typical DC account, with the cost advantages stemming from longevity risk pooling, higher investment returns, and optimally balanced investment portfolios,” focused largely on life-expectancy discrepancies between individuals and pension plans, reiterating that individuals who contribute to defined-contribution plans must anticipate a much longer life expectancy to ensure they will not run out of benefits before death. DB plans offer a much more adequate financial support between retirement and death, and at a lower cost and lower contribution rate. “Shifting from a DB plan to a DC plan and maintaining the same contribution rate will generate significant cuts in retirement income,” according to the report. “Considering the magnitude of the DB cost advantage, the consequences of a decision to switch to a DC plan could be dramatic for employees, employers, and taxpayers.”
Be sure to check back in next Friday for the latest news in the fight for a secure retirement!