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. You need to know this news in the fight for a secure retirement.
Oklahoma Police Set to See an Increase in Pension Benefits
Oklahoma lawmakers overrode Governor Kevin Stitt’s veto last week, enshrining a one-percentage-point increase in contributions by both the state and participants in the Oklahoma Police Pension & Retirement System.
Gov. Stitt previously vetoed Senate Bill 102, citing claims that the increase in benefits would put the state in a difficult financial position in the future. Supporters of the bill argued that the pension system is in good condition and will remain so–and the increase in benefits will help to fill vacancies in the state’s public safety sector.
Oklahoma Attorney General Gentner Drummond spoke out in support of the veto override, saying, “SB 102 ensures better retirement benefits for current and future officers while incentivizing seasoned officers to remain on the job during severe staffing shortages. Today’s votes are a win for Oklahoma communities. This legislation will support our officers’ commitment to remain serving their communities while we work to solve the recruiting crisis. This is a win for public.”
Can DB and DC Retirement Plan Models Coexist Peacefully?
In a piece for Governing this week, finance columnist Gerard Miller touted the impact of “progressive pension paternalism” on the public sector. While toeing the line between pension advocacy and the inclusion of defined contribution (DC) plans in public employee retirement packages, Miller drives home the message that a three-legged stool approach to retirement not only values the hard work and dedication of public employees, but also aids in recruitment and retention.
Citing the stabilization of plan funding, Miller says, “Many states enacted some sensible limits on the promises that public pensions could make on a go-forward basis, and those reforms now apply to about half of their workforces, so the policy misjudgments and benefits over-promises of prior decades are starting to wear off for many plans.”
He also notes “the higher embedded mutual fund fees of most DC plans and the commonplace investment underperformance of many naive employee-investors” has taken its toll on soon-to-be retirees who have been stripped of access to DB plans, and that 401(k) style plans are “falling short of their intended purpose after several decades of operation.”
Miller goes on to suggest that employers can find a happy middle ground between DB and DC plans by offering ]new hires both types of retirement plans, either in a hybrid or choice capacity. NPPC believes that a defined benefit pension remains today’s workers’ most secure retirement option.
401(k)s Deepen the Chasm of Income Disparity
A new report from Vanguard confirms that the only workers who benefit from defined-contribution retirement plans are higher-income earners. The Vanguard report, which is an extension of a study conducted by economists at MIT, Harvard, Yale, and the Census Bureau last year, found that employer match programs–the amount of money the employer contributes to a worker’s 401(k) in addition to the employee’s contribution–”amplify differences in how much different groups save for retirement — Black and Hispanic workers contribute less to these accounts. And the rich (and their children) save more.”
Fiona Greig, global head of investor research and policy at Vanguard says, “The system seems to be rewarding those who already can and do save the most.” The research also suggests that the top 20% of earners are taking home 39% of all income, concluding that 401(k) matches really only benefit those workers with higher salaries, who are already in a better position to sock money away for retirement.
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.
