CHICAGO (Reuters) – Former U.S. senator Alan Simpson summarized the argument well: seniors fighting Social Security benefit cuts were nothing more than “greedy geezers” stealing from young people “who are going to get gutted.” The Wyoming Republican’s memorable phrase from 2012 is a good example of the colorful language of so-called intergenerational warfare – pitting generations against one another with zero-sum-game economic arguments.
That kind of rhetoric might be useful for some politicians, but it is economic nonsense. Families do not live in economic silos, separated from one another, and some recent evidence shows that a large segment of the senior population is anything but greedy. In fact, they are struggling to meet basic living expenses – and the economic pain also affects younger family members.
Consider the results of a recent survey by AARP. (bit.ly/38hFuTn) It found that one-third of midlife adults with at least one living parent (32%) are providing financial support to them, usually for living expenses such as groceries and medical costs. More than half of midlife adults (54%) provided $1,000 or more to their parents in the last year; within that group, 34% provided help ranging as high as $5,000, and 13% provided help as high as $10,000.
“I think some people have an image of the older generation living high on the hog, draining America’s coffers by spending their Social Security on cruises to the Bahamas,” said George Mannes, senior editor of the AARP magazine. “But a lot of older people are really living close to the bone.”
The AARP survey results are disturbing – but really only hint at the number of older households coping with financial stress.
A more detailed measure is the Elder Index, produced by the Gerontology Institute at the University of Massachusetts Boston (bit.ly/2SyIbcE). The index measures the cost of living for older people living as couples or alone – but independent of children. It is built around the typical budgets of seniors.
“It’s very stripped down – it doesn’t include anything anyone would remotely consider unnecessary,” said Jan Mutchler, a professor of gerontology at the university. That means expenses like food, housing and utilities and minimal levels of transportation – and of course, healthcare costs.
The index is calculated for every county in the United States, which means it takes into account regional variances in the cost of living.
The university recently released new data for 2019, and it shows that 50% of Americans over age 65 living alone have incomes that are below the index – in other words, they lack the resources to pay for their basic living needs. For couples – who usually benefit from two Social Security checks and are more likely to have other income – the comparable figure is 23%.
Those figures are shocking, and they are much more dire than the federal measure of poverty used to establish eligibility for many state and federal assistance programs. For example, a measure used by the U.S. Department of Health and Human Services defined poverty for single people last year at annual incomes of $12,490 and $16,910 for couples (bit.ly/31JuDPI). That translates into poverty rates of 18% for singles and 5% for couples – much lower than what the Elderly Index suggests.
These elders live in what Mutchler calls a “gap.” “They’re not poor enough to be considered poor by the federal government, but they fall below what they need to get by and so they’re struggling.”
The best way to ease this economic stress is through strengthening our two key social insurance programs. “Strengthening and stabilizing Social Security and Medicare is very important,” Mutchler said. “And then, we should strengthen and expand support for the housing needs of older people.”
To which I would add – not just older people today. Strengthening our social insurance programs will be even more beneficial for young people, who will arrive at retirement with smaller retirement accounts and much less likely to lay claim to a traditional defined benefit pension. (reut.rs/38i4cTL).
Social Security reform has been a hot topic on the presidential campaign trail this year, with Democrats competing for pole position as champions of expanded benefits.
A review of candidate positions on Social Security reform by the Center for Retirement Research at Boston College (bit.ly/2tU74r6) found several Democrats backing across-the-board benefit expansion, and a larger number favoring increases targeting vulnerable seniors. The latter include increasing Social Security’s special minimum benefit, which aims to keep very low-income workers out of poverty in retirement; expanding Social Security benefits for caregivers; and raising benefits for surviving spouses.
Targeted increases enjoy broad bipartisan support. A 2016 commission on retirement security organized by the Bipartisan Policy Center (bit.ly/2vmBXok) endorsed several ideas of this type.
“It’s entirely appropriate to focus on parts of the population where current benefits are inadequate,” said Shai Akabas, director of economic policy at the Bipartisan Policy Center. “People with low incomes can work a long career and still be getting benefits below the poverty line, or not very much above it. We need to make sure seniors who have worked for many years are not forced to live in poverty in retirement.”
President Donald Trump ran in 2016 opposing any cuts to Social Security benefits and pledged to “protect” Social Security in his recent State of the Union address. But he also recently hinted that he might push for benefit cuts in a second term in an interview with CNBC. And his 2021 budget plan, unveiled this week, contains an array of cuts to social insurance and safety net programs, including tightened eligibility requirements for Social Security’s disability program. (reut.rs/2OMqXaH)
No moderator has posed a question about Social Security to candidates at any of the presidential debates so far. Perhaps they think it is a topic of interest only to the geezers, or the “OK boomers.”
Note: The author is a retired state employee.
Retired Oklahoma state and local public servants have now gone 10 years without a cost of living adjustment, while inflation has eaten away at their income.
For decades they taught our children, kept our streets safe, guarded prisons, fought fires, and provided essential health and social services. They dedicated their lives to making our state better. Now it’s past time to repay our debt to them. We should start on this by providing a long-overdue cost of living adjustment (COLA).
Public employment has long been a path to the middle class, particularly for women and people of color, who are better represented in government jobs than in the workforce as a whole. Women older than 65 typically have 25% lower income than men, and participating in traditional public retirement systems narrows that gap. Pensions are equally important for Blacks who lost wealth during the great recession and afterwards. This group also typically has very low levels of retirement savings.
Robust retirement benefits help keep our retired public servants in the middle class. Inadequate benefits can make it difficult or impossible to keep up with costs like health care, utilities and food, let alone enjoying the “golden years.” This is particularly a challenge for firefighters, highway patrol officers, and some teachers who were not allowed to participate in Social Security.
Oklahoma has made that challenge for retirees a lot harder over the last decade. In our state, retirees get a benefit increase only when approved by the Legislature. The last COLA was granted in 2008, more than 11 years ago. The average state employee who retired that year had — and still has — a benefit of $1,303 per month. Since they retired, inflation has lowered the value of that benefit to $1,042 in today’s dollars. Worse yet, premiums for retiree health insurance have climbed 42%, more than double the rate of inflation. Health insurance alone can take up half or more of the monthly retirement check.
Most state, city and school employees are required to participate in one of six state-operated retirement or pension systems. With the exception of some recently hired state employees, all who serve long enough qualify for a defined benefit, which is a fixed monthly payment that depends on years of service and the salary earned in the last three to five years of a career.
Retirement benefits are paid from funds restricted only for retirement. The retirement funds come from four different sources. Employees pay a percentage of their monthly pay into the retirement fund. Their employers, like state agencies, school districts or local police or fire departments, pay a percentage of payroll. State taxes provide additional funding for some of the retirement funds. All of these receipts are invested so that the balance of the fund grows enough to pay current and future retirement benefits. According to the National Institute on Retirement Security, investment earnings pay nearly 55% of costs of pensions, so the state gets a great return on the first three sources of funds.
At a legislative study on COLAs, Rep. David Perryman, D-Chickasha, stated, “You shouldn’t retire people into poverty…Our failure to approve a cost of living adjustment will put them there within a few short years.”
That’s not what we promised these public servants when they took their jobs, or when they retired. Raising the COLA by 4% would be a good step, but it only restores only about one-fifth of the purchasing power that retirees lost by retirees since their last COLA. A COLA of at least 4% should be enacted this year. It’s the right thing to do for our retired public servants.
Shinn is a tax and budget analyst at the Oklahoma Policy Institute.
WASHINGTON, Feb. 5, 2020 /PRNewswire/ — As governments struggle to fill jobs that deliver vital public services, new research from the National Institute on Retirement Security (NIRS) finds that Millennials working in state and local government are satisfied with their jobs and intend to stay with their employers so long as their benefits are not cut.
In a nationwide poll of state and local employees, 84 percent of Millennials say they are satisfied with their job. This high job satisfaction among state and local Millennial employees comes despite sentiment that they could earn a higher salary in the private sector. Most Millennials in state and local government (80 percent) believe they could earn a higher salary working in the private sector, and only about one on four see their salary as very competitive.
The research also finds that state and local Millennial employees (85 percent) say that they plan to stay in their job until they retire or can no longer work. But, Millennials’ job loyalty would alter if their benefits were changed. Some 78 percent say their healthcare benefits is one reason they chose a position in the public sector, and 77 percent say they would be more likely to leave their job if this benefit were cut.
Similarly, a high number of Millennials (84 percent) say that a pension benefit is the reason they stay in a state and local government job. These Millennials say that cutting their pension benefits would make them more likely to leave their state or local government job (71 percent).
These findings are contained in a new Issue Brief, Millennial State & Local Government Employee Views on Their Jobs, Compensation & Retirement, available here. This research provides a deeper analysis of NIRS’ November 2019 opinion research report, and it drills down to examine the views of Millennials working in state and local government. A webinar is scheduled for Thursday, February 13, 2020, to review the findings and respond to questions. Register at no charge here.
The Millennials survey data reveals that:
- Despite knowing they could earn a higher salary in the private sector, Millennials working in state and local government are satisfied with their jobs and total compensation. The vast majority (84 percent) are satisfied with their job. One in four say their salary is very competitive, but most (80 percent) say that their total compensation package (salary and benefits) is competitive.
- State & local government Millennial employees are planning to stick with their current job, but changing their benefits might push some out the door. Most Millennials (85 percent) in state and local government say that they plan to stay in their job until they retire or can no longer work. Some 77 percent say they would be more likely to leave their job if their healthcare were cut. A high number of Millennials (84 percent) say that a pension benefit is the reason they stay in a state and local government job, and 71 percent say that cutting their pension benefits would make them more likely to leave their state or local government job.
- Millennials working in state and local government are highly supportive of pensions, and they see the advantages of their benefits beyond retirement. Some 97 percent of Millennials in state and local government have favorable views of pensions, and more than three-fourths (77 percent) say that they prefer pensions over 401(k) accounts. Millennials see the value of pensions beyond providing retirement security. Some 92 percent of state and local Millennials agree pensions serve a role in incentivizing long public service careers, while 94 percent say that pensions serve as effective tools for recruiting new employees to state and local government jobs
- State and local government Millennial employees feel confident about their retirement, but worry about cuts or changes to benefits. Most Millennials (74 percent) working in state and local government say they are confident that they will be financially secure in retirement. But, 85 percent say they are concerned about potential pension benefit cuts, and 84 percent expressed concern about government officials underfunding pension contributions. More than three-fourths of state and local Millennial employees (77 percent) say they are concerned about cuts to their cost-of-living adjustments.
- State and local government Millennial workers say eliminating pensions has negative consequences. Nearly all agree (92 percent) that eliminating pensions will weaken government’s ability to recruit and retain workers to deliver public services. The vast majority (86 percent) say that eliminating pensions will weaken public education, and most Millennials (82 percent) in state and local government agree that eliminating pensions will weaken public safety.
“The key takeaway from this research is that Millennials understand the tradeoff between pay and benefits that often comes with a public sector job. Clearly, benefits are a driving force behind Millennials decision to seek and stay with a career in public service,” said Dan Doonan, NIRS executive director.
“As Baby Boomers retire and Millennials dominate the workforce, it’s imperative that government employers attract talented younger employees committed to public careers that keep our communities healthy and safe and educate our children. Benefits play a key role in workforce loyalty for Millennials, turning jobs into careers,” Doonan explained.
In 2016, Millennials became the largest generation in the U.S. labor force. According to the U.S. Bureau of Labor Statistics, more than 22.5 million U.S. workers are government employees with 2.8 million at the federal level, 5.1 million at the state level, and 14.6 million at the local. In 2019, 32 percent of state and local employees were Millennials. More than half (58 percent) of state and local public employees work in education, while 13 percent work in public safety, and 12 percent work in health and safety.
“But despite state and local Millennial employee high satisfaction with their benefits, governments have been cutting back on health and retirement plans or shifting more costs to employees. We hope this research will inform the policy debate on Millennial preferences, thereby helping government employers make informed decisions related to the public workforce and benefits. More benefit cuts could have unintended and detrimental consequences — like driving Millennials out the door and harming public services,” Doonan said.
Conducted by Greenwald & Associates, information for this study was collected from online interviews between August 22 through September 12, 2019. Sample was selected using two online panel providers, with 1,118 public sector employees aged 18 and older completing the survey to include 362 teachers, 284 police officers, 204 firefighters and 268 other public sector employees. The final data were weighted by age, gender, and personal income to reflect the demographics within each of these professions, and also weighted to reflect the distribution of these professions within the public sector workforce.
The National Institute on Retirement Security is a non-profit, non-partisan organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers and the economy as a whole. Located in Washington, D.C., NIRS’ diverse membership includes financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org. Follow NIRS on Twitter @NIRSonline.
SOURCE National Institute on Retirement Security
FRANKFORT, Ky. — As state lawmakers continue to grapple with funding teacher pensions, some say lessons from neighboring West Virginia can offer insight into whether or not Kentucky should switch to a defined-contribution retirement plan for teachers or uphold its public pension system.
David Haney, executive director of the West Virginia Education Association, says in the early 1990s, the West Virginia Teachers Retirement System closed after decades of underfunding by the state. He says, when the state moved to offer teachers 401(k) plans, they were fraught with problems, including lack of diversification in stock options.
“The biggest problem was the state here in West Virginia offered no education for the participants in the plan,” he relates. “Education employees are not investment experts, and so consequently, many of the participants really suffered in terms of their ability to grow their investment.”
Haney says decades later, the 401(k) plan also left thousands of teachers grossly unprepared for retirement.
There are currently more than 40,000 public school teachers in the Commonwealth.
Larry Totten, president of Kentucky Public Retirees, says the state will have to grapple with a senior population down the road that might not have enough income to survive on.
“As a retiree, if you don’t have the income to sustain yourself, you’re going to have to rely on family, public assistance, something to stay alive,” he states.
Haney points out that in 2005, 83% of West Virginia teachers aged 60 and older had an average savings of just $23,000 in their 401(k). He adds, he knew the state would have to make some major changes.
“And that’s why we pushed very hard to go back to the defined benefit system,” he explains. “And so, in 2008, now senator, then Gov. Joe Manchin worked with us and the Legislature to reopen the defined benefit plan.”
Haney says when given the option to move back to a pension, nearly 80% of West Virginia teachers made the switch.
PHOENIX, Ariz. – Healthy pension plans for public workers help the Arizona economy, not just the retirees who get the checks, according to the latest research.
Backers of Arizona’s public pension system say their defined-benefit retirement plans are doing well, although critics have claimed that some plans may be under-funded. The National Institute on Retirement Security says the benefits from these pension plans – including teachers’ – generated more than $7 billion in economic activity in Arizona in 2016, the most recent figures available.
Julie Horwin, president of the Arizona Education Association-Retired, agrees they’re helping to keep the economy strong.
“Pensions are not just an entitlement given to people who are older,” says Horwin. “They’re actually one of the chief economic engines that drives Arizona. Without those pensions, our economy would suffer a great deal.”
One example of criticism was a recent op-ed by the research group Arizona Chamber Foundation. It warned that local and state governments are regularly having to increase their pension-plan contributions, suggesting this could eventually lead to solvency problems.
The National Institute on Retirement Security research breaks down the numbers further, showing that each dollar invested by Arizona taxpayers in public pensions supports more than $6 in economic activity.
Institute Executive Director Dan Doonan says defined-benefit pensions also have advantages for retirees over other forms of savings.
“What we’ll see more with the 401(k), as retirees retire, it’s not really clear how much you can pull out each year,” says Doonan. “So, you spend your working years saving – and then you retire, and you’re sort of afraid to use the money you save for retirement, because you don’t know what’s coming.”
Doonan adds it is difficult for many workers to save enough for retirement, making a pension even more critical.
“We looked at the median savings of workers and it’s basically zero dollars,” says Doonan. “And even amongst those nearing retirement, it’s about $88,000. That’s a lot of money – but if you think in terms of a few decades in retirement, it’s not a lot of income per year.”
Despite claims that public pensions are draining state and local coffers, he adds only about one-quarter of contributions to Arizona pensions are from employers. The rest are from employees and the successful investment of pension funds.
Although state retirement systems have made a strong recovery from the Great Recession to reduce once-yawning funding gaps, years of tax cuts could come back to haunt states and force them to reduce retirement benefits. That’s according to a report from the National Conference on Public Employee Retirement Systems (NCPERS).
NCPERS is urging state governments to close tax loopholes and end “irresponsible corporate subsidies” before another recession strikes to avoid cutting state services and public employees’ retirement benefits.
“With the US economy now 10 years into an economic expansion, it’s not a question of if, but when, we will face another recession,” Hank Kim, executive director and counsel of NCPERS, said in a statement. “State governments have an immediate opening to improve their revenue structures and need to act decisively.”
The report said Americans’ personal income, adjusted for inflation, rose 24% from the end of the Great Recession in mid-2009 to the last quarter of 2018. Real tax revenues collected by the states, however, were only 13.4% above where they were during the third quarter of 2008, their pre-recession peak.
“Meeting future pension plan obligations and commitments to other public services will be much easier if states have an adequate and growing tax revenue structure,” said the report.
Part of the declining share of state tax revenues as a share of income is attributed to legislated tax changes, said the report. According to the National Council of State Legislatures (NCSL) states cut taxes each year from 1995 to 2000, a period of strong economic growth with the GDP growth averaging 4.3%.
But the US was hit by a recession in 2001, which was followed by six years in which the GDP growth averaged just 2.7%. From 2001 to 2009, states enacted tax increases, mostly through sales taxes. In 2010, the first year of recovery, there were large increases in numerous taxes and fees, and since then, legislated tax changes have been small, and the enacted changes tended to be sales tax increases.
NCPERS expects another recession could hit the economy at some point over the next decade.
“When that happens, the states’ ability to meet their financial commitments, such as public pensions, will depend on those states having sufficient revenues to fulfill these commitments,” said the report. “When tax revenues tighten, as they do in recessions, the competition for general fund dollars will become even more intense, and public pensions will face greater challenges in obtaining the funding to meet any budgetary gaps.”
The report outlined several principles for making state tax systems stronger, more resilient, and fairer for both current and future taxpayers:
- Avoid tax cuts and other legislative actions that reduce tax revenues.
- Tax cuts and tax incentives aimed at attracting businesses and jobs rarely work as advertised.
- Reverse previous tax cuts. Major tax increases are never easy, but the easiest tax to raise is probably one that was recently cut.
- Increase reliance on personal income tax. Personal income tax has the capability to grow at least as fast as the growth in the income of state residents.
- Minimize dependence on sales and other consumption taxes. Sales taxes are regressive, meaning they fall harder on low-income taxpayers, and the revenues tend to diminish over time.
- Be wary of exotic revenue sources such as lotteries and gambling, casinos, which tend to displace existing revenues.
- Require all tax breaks to expire after some set period.