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:
Connecticut directing additional $3.6 billion to pension funds by Rob Kozlowski. The Connecticut Retirement Plans & Trust Funds will receive an additional $3.6 billion contribution next year due to a tax revenue budget surplus from 2021. $2.7 billion will go into the State Employees Retirement Fund and $903 million into the Teachers’ Retirement Fund. Historically, Connecticut has struggled with its unfunded liability and has taken steps such as regulating cost-of-living adjustments for retirees, increasing vesting periods, adjusting the retirement age, and increasing employee contributions to address the issue. Managing these funds in a fiscally responsible manner will only benefit the state and its public employees, as pensions provide Connecticut with a $7.3 billion annual economic impact.
Opinion: Recognizing ‘legacy debt’ is key to better funding of public pensions by Alicia Munnell. A pension’s unfunded liability is caused by several factors, including legacy debt, which are the costs initiated at the beginning of a retirement system. Many public defined-benefit plans started in the early 20th century, long before actuarial processes were in place–creating debts that have never been fully addressed or have been exacerbated by poorly-made policy changes. Legacy debt multiplied after plans started using modern actuarial practices due to several factors, such as poor returns on investments and inadequate contributions policy. Today, legacy debt makes up a large percentage of unfunded liabilities in states with significantly underfunded plans. A recent study by the Center for Retirement Research found that legacy debt made up 40% of unfunded actuarial accrued liability on average. The article suggests that these antiquated legacy funds should be transferred to separate funds and managed differently than state pension funds. This approach would make unfunded liability less of an overwhelming figure for many states which drives lawmakers to cut benefits. It could also, ease the financial burden on current public plan participants to pay down those costs.
K-12 leaders are warning Congress of a ‘national crisis’ of teacher shortages by Charles Hendrix. At a recent hearing of the House Appropriations Committee Labor-HHS-Education subcommittee, lawmakers discussed the various issues contributing to the nationwide teacher shortage. The committee discussion included issues such as historically low teacher salaries, the fallout from the Covid-19 pandemic, and the ever-narrowing pipeline of new teachers graduating from higher education institutions. One major recommendation of the committee was to enhance policies regarding recruitment and retention. We’ve said it before and we’ll say it again: pensions help recruit and retain public employees, including teachers, which will guarantee a modest lifetime retirement benefit after their service. In a recent study by the National Institute for Retirement Security, 86% of survey participants believed that offering better benefits to teachers could help close the staffing gap in public schools.
Be sure to check back next Friday for the latest news in the fight for a secure retirement!