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.
Before you dive into our top stories from this week, make sure you check out stories of public employees helping their communities.
Here are our top stories:
The Middle Class Is Missing From Retirement Savings by Dan Doonan. In a recent article for Forbes, Dan Doonan, executive director of the National Institute on Retirement Security (NIRS), points out that the current retirement savings tax structure in the United States fails most middle-class workers and is in desperate need of reform. A recent report by NIRS found that middle-class workers in the private-sector are more likely to face challenges in retirement, as many of them do not qualify for the same tax incentives and breaks on their defined-contribution retirement plans that higher-wage and lower-wage workers receive. Tax match incentives given at the time of contribution into a 401(k) style account range from zero to 12% for the middle class. Often, these savings are such a small amount that it does not incentivize workers to invest money into an account that will be locked up for decades. The workers who are contributing to their retirement accounts will still face challenges because they’re not contributing enough and are potentially missing out on employer contributions. In addition, Social Security does not provide adequate wage replacement for the middle class, especially in light of historic inflation rates. Middle-class people working in the public sector are more likely to have access to defined-benefit pension plans, which provide more secure retirement benefits.
Baby Boomers Likely to Underestimate Their Retirement Income Needs by Nasdaq. According to research from the Center for Retirement Research (CRR) at Boston College, Baby Boomers born after 1960 have been found to spend down their nest egg faster than older generations, particularly those born between 1920 and 1940, many of whom had access to defined-benefit pension plans. Once 401(k) plans were introduced, there was limited access to defined-benefit plans for those working in the private sector. However, those working in the public sector had more access to pension plans. The problem with defined-contribution plans, like 401(k)s, is that retirees have to ensure they’ve saved enough to get through their post-work years, but some underestimate the cost of retirement. Retirees with pensions do not have to draw from their personal savings as much. CRR’s Robert Siliciano and Gal Wettstein wrote, “Retirees with a DB had less need to draw down financial assets in their retirement accounts to cover their spending and could reserve these assets for late-life medical expenses or bequests.”
DeKalb County Schools hopes retired teachers will return to classroom thanks to new state law by Dan Whisenhunt. Amid teacher shortages, schools around the country are inviting retired teachers back into the classroom after a new law passed allowing them to return to teaching and earn a full salary, while still maintaining their pensions. However, each state has its own policy on how this can occur. Georgia’s legislation, in particular, states that “Beginning on July 1, 2022, Georgia House Bill 385 allows retired educators with a minimum of 30 years of creditable service to return to the classroom after a 12-month waiting period following retirement and earn a full-time salary and maintain their pension.” Dekalb County, Georgia, currently faced with a severe shortage of teachers, is crossing its fingers that teachers will take advantage of the new law and return to teaching. In Santa Fe, New Mexico, that law is a little different. Educators can return to the classroom three months after retiring with a three-year limit on teaching or wait 12 months after retiring and receive no hour or income limitations. What this highlights is how real the teacher shortage crisis is in school districts across the country. It is vital that public employers, including schools, remain competitive in the job market in order to attract and retain teachers and other public workers. Providing a pension benefit gives the public sector that competitive edge.
Be sure to check back next Friday for the latest news in the fight for a secure retirement!