This Week in Pensions: February 28, 2020

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Welcome to February’s final 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.

Here are the top stories from this week: 

COLA compromise: Public pension boost based on longevity by Tres Savage. In Oklahoma, Savage writes about HB 3350, which would grant a cost-of-living adjustment (COLA) for most of the state’s retired public employees for the first time in 12 years. The bill would “approve a 4 percent increase in monthly pension payments for those retired for five years or more as of July 1, 2020, and a 2 percent increase for those retired at least two years but not five years” and include increases for retired volunteer firefighters. The legislation passed the House Rules Committee unanimously on a 8-0 vote yesterday. Sabra Tucker, the executive director of the Oklahoma Retired Educators Association and the spokesperson for Keep Oklahoma Promises, said in a statement: “Oklahoma’s retired public employees have waited for a COLA for 12 years. Year after year, costs have gone up while our retirees have been left behind. [Our organization] is united behind HB 3350, which ensures retirees can live in retirement with dignity.”

Americans Say They Can’t Save Enough for Retirement by Roz Brown. In this article for Public News Service, Brown writes about how many Americans say they have difficulty saving for retirement. Brown cites the federal government’s “Report on the Economic Well-Being of U.S. Households” that “finds nearly 40% of American households couldn’t afford a surprise $400 expense — which means tires, a medical emergency or even a minor home repair are out of reach.” Brown also cites a second study from the National Institute on Retirement Security (NIRS) which “says 70% of Americans feel the average worker can’t save enough for retirement.” In the article, Casey McCabe, the director of the New Hampshire Retirement Security Coalition, said it was concerning that many felt they couldn’t properly save enough for retirement because the economy depends on retirees having enough financial resources. “The ability for (retirees)  to be secure in their retirement also allows them to go out and support the local and state economy, because they have the income to do so,” McCabe said.

Dismantling our public pensions won’t help economy by Joel Fassbinder. In this op-ed for the Bozeman Daily Chronicle, Fassbinder writes about why public pensions matter in the state of Montana. Fassbinder argues that defined-benefit pensions are a better deal for the state’s taxpayers and economy than defined-contribution plans like 401(k)s, writing that “almost two-thirds of the revenue of public pensions comes from investment earnings, which is why the taxpayer dollar invested in a public pension fund has such an outsized impact.” Fassbinder also argues that “pensions serve as important economic stabilizers during a downturn in the financial markets” because “retirees will continue to spend their benefit on necessary items like food and medicine, providing a much-needed source of direct spending during an economic downturn.” 

Teacher pension plans are getting riskier—and it could backfire on American schools by Chad Aldeman. In this blog for the Brookings Institution, pension skeptic Aldeman makes a few bogus claims regarding pension plans for educators. Aldeman uses the term unfunded liability loosely to argue that pension plans could slow down hiring more educators and threaten public spending on education. As we’ve covered on our blog in the past, this is the actual definition of an unfunded liability: 

“When there is a difference between the total amount of benefits owed to ALL current employees & retirees and the value of the financial assets the pension plan manages, then there is an “unfunded liability.” This means that at a specific point in time, the pension plan does not have the full amount of money it will need to pay out ALL of the retirement benefits it will owe in the future to ALL of its current and former employees.”

This scenario has never happened before, as retirement benefits obviously do not need to be paid out to current employees. Furthermore, pensions are actually a huge asset when it comes to recruiting and retaining public employees. NIRS has found that 94 percent of state and local employees say offering a pension is an effective tool for attracting and retaining employees. Finally, research shows that pensions do not crowd out education spending. According to the National Conference on Public Employee Retirement Systems (NCPERS), in 2016 state and local government pension contributions totaled 4.1 percent of state revenue, compared to 28.3 percent of revenue going to education spending. In our view, pensions are the best way to guarantee a dignified retirement for educators. 

Be sure to check back next week for the latest news in the fight for a secure retirement!