Welcome to this edition of This Week in Pensions! This is the news you need to know in the fight for a secure retirement.
Here are our top stories:
Bill Huff: Switching to a defined contribution plan could solve the pension problem by Bill Huff. In his commentary for VT Digger, Bill Huff, a former certified financial planner, rails against the unanimous Senate vote to override Governor Phil Scott’s veto of pension reform bill S.286. Huff references a pension reform plan he wrote for State Representative Samantha Lefebvre that he claims “would solve the pension plan problem once and for all.” Huff’s proposal? First, to freeze the pension system–effectively, closing the system to new hires. Second, to offer a defined-contribution plan to existing pension participants. Huff claims that these moves will eventually eliminate the state’s obligation to the pension system, but it has been proven time and again, in states like Alaska, Kentucky, Michigan, and West Virginia, that closing a pension system is problematic for state budgets, taxpayers, and the community at large. Huff focuses on what’s best for the stakeholders and investment brokers, arguing that it’s best for public employees to opt-out of their defined-benefit plans so they can control their own retirement benefits, decide how much to contribute, and rely solely on themselves to make the best decisions. However, 401(k) style plans do not provide guaranteed lifetime benefits and in many cases do not provide the same financial benefit that pensions do.
Gov. signs bill paying off more than $1 Billion of KPERS debts. This week, Governor Laura Kelly signed SB 412, declaring a transfer of funds in excess of $1 billion from the State General Fund to the Kansas Public Employees Retirement System (KPERS). As we discussed with Colorado last week, this is a great step forward in funding discipline for the state’s pension systems. KPERS has come a long way since the Brownback era of mismanaged funds, tax cuts, and harmful pension reforms left the system on shaky ground. The state of Kansas, like many others, struggles to fully staff their public departments, leaving their communities at risk of diminished public services. A healthy public retirement system helps to recruit and retain essential public employees, a fact the lawmakers in Kansas should keep in mind as they shore up their fiduciary responsibilities to KPERS.
High Inflation Disrupts Retirement Savings Strategies by Stephen Miller. In March, the U.S. Bureau of Labor Statistics reported that inflation rose to 8.5%, the highest its been in 40 years. This article published by Society for Human Resource Management reiterates the financial instability inflation causes for retirees, especially for those who rely solely on defined-contribution and (401)k style retirement plans. Inflation not only affects day-to-day living costs, but it also affects the buying power of investment funds. Mixing high inflation with a volatile market puts defined-contribution investments in peril. However, asset diversification, longevity risk pooling, and professional management of defined-benefit pension plans provide stability and regular, monthly lifetime payments.
Be sure to check back next Friday for the latest news in the fight for a secure retirement!