Welcome to the latest edition of This Week in Pensions! This is the news you need to know in the fight for a secure retirement. We have gathered the top stories about pensions and retirement security from the previous week.
For the whole month of November, we are sharing our gratitude for public employees. This week we observed American Education Week with a salute to the Educational Support Professionals whose commitment to public service is integral to the success of our public schools. Check it out! And make sure you take the time to thank a public employee (or two!) this month.
While the private and public sectors differ greatly, retirement trends in the private sector workforce significantly impact public sector policies. When the private sector began eliminating defined-benefit pensions in past decades, it opened the door for state and local governments to strip retirement security from employees. So when technology giant International Business Machines (IBM) announced this week that it would discontinue 401(k) matches in favor of a return to defined-benefit plans, pensions got a much-needed boost in the eyes of the vast and influential private sector.
Starting in January 2024, IBM will implement a defined-benefit plan that will automatically invest 5% to employee retirement accounts, with no required contribution from employees.
In an article for Forbes, Teresa Ghilarducci writes, “The flaws of the 401(k) – type plans have been well known. DC plans are not good designs for our world and the humans we have.” She continues, “401(k)s fail because they are individually directed, and the choices are high-priced, inefficient retail funds. No wonder DB plans earn a higher-risk adjusted rate of return than DC plans year after year.” IBM’s decision to freeze its defined-benefit plan 15 years ago only fueled the fire of public pension opponents, beginning an onslaught of attacks and reforms in the public sector. This move away from defined-contribution plans, prompted by employee disdain over poor-performing 401(k)s, reaffirms that DB plans are the most secure, highest-performing, and most cost-effective retirement vehicles for all workers.
This week, Pew released their annual study on the state pension funding gap. Pew, whose public pension involvement has been cause for alarm in the past, reports that due to fiscally responsible policy and increased contributions, public pension plans are largely solvent across the nation. “Thanks to these changes, which include reforms to benefit designs, a commitment to fiscal discipline, and greater monitoring of the financial health of public retirement systems, no state is at risk of pension plan insolvency,” Pew reports. “By 2018, the number of plans at serious risk of insolvency had dropped to two. And in 2021, no state was below that dangerous threshold, a sign of the significant turnarounds achieved by states such as Colorado, Kentucky, and New Jersey.”
Be sure to check back next Friday for the latest news in the fight for a secure retirement! For now, sign up for NPPC News Clips to receive daily pension news from across the country directly to your inbox.