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.
The Unsung Economic Engine: Retiree Pension Spending
With prices increasing and the stock market decreasing, the economy is becoming more unstable every day. It’s important to recognize the fundamental causes of spending and financial growth. According to a new report from the National Institute on Retirement Security (NIRS), the core drivers of economic impact are generally thought of as industries like technology, health care, and retail, but an additional, more unconventional economic catalyst should also be acknowledged: retirees with pensions.
Pension income is much more than the safety net that provides a stable retirement. It also injects money into local communities, spreading to the broader economy. This pension income is spent on essentials like groceries, housing, medicine, utilities, clothing, transportation, and entertainment. This helps stimulate and activate the economy.
The economic impact of pensions in 2022, the most recent year for which data is available, shows that retiree spending powered by public and private pensions in the U.S. resulted in $1.5 trillion in total economic output, supporting 7.1 million jobs across the nation across various sectors. The report also found that $224.3 billion in tax revenue was attributed to public and private pension benefits.
These extraordinary numbers support how robust defined-benefit pensions can be in helping an economy stay healthy. To read more about the economic impact of pensions, read our blog on Pensionomics here!
“We must demand that lawmakers fix Tier 2”
Illinois public pension system has two widely different benefit tiers. Both tiers require employees to contribute 8% of their income to the pension system, but the benefits received by teachers, education employees, and various other public workers in the two tiers are far from equal.
Tier 2 members must work five more years than Tier 1 colleagues to access benefits, the salary used to calculate their pension is capped at a lower level, and a less favorable formula determines the benefits. Tier 2’s cost of living increases are also not tied to inflation, resulting in income loss over time.
As noted by Northeastern Illinois University sociology professor Brooke Johnson, Ph.D, “The diminished benefits under Tier 2 pensions make public sector jobs less attractive here, driving excellent educators to states or careers that offer better compensation. Generations of Illinois students could lose out on experienced, committed educators who are necessary for academic success and an educated workforce.”
As seen in other states that have reduced or eliminated defined benefit pension benefits, these changes often decrease worker retention and could compound into a hiring crisis, leading to Illinois citizens being deprived of quality public services.
The message is getting through to Illinois lawmakers. In February, Governor JB Pritzker said, “If we don’t fix our system to meet that Social Security minimum, it will cost taxpayers in Illinois far more than it should because we could end up getting sued and penalized and having to put back Social Security-level funding into the pension system.” G That’s not a good idea.”
Colorado lawmakers eye term limits, transparency rules for PERA board
In Colorado, Senate Bill 147 addresses transparency concerns about the state pension fund. The bill would establish term limits and new disclosure requirements to build trust in the system through transparency and accountability. This is after PERA’s Board of Trustees limited public access and comment, insulating itself from its members and the general public.
Previous attempts to elicit transparency from the PERA board have been unsuccessful, but this new bill has a wide range of support across public employees and lawmakers.
“I think it’s common sense stuff,” said Karen Wick, the program manager for Secure PERA, a coalition representing PERA members, retirees, and public sector agencies.
“This bill, at the heart of it, is elevating some things that PERA is already doing, but also some things that just put it back in line with what else we expect from our institutions and for participants,” Wick said
For an updated bill tracker on the legislation NPPC is following nationwide, go to publicpensions.org/resources/legislation-tracker/.
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.