April Article Roundup

If you don’t read any other retirement articles this month, you at least need to read this. According to a GOBankingRates survey, nearly 40% of Americans do not know what a 401(k) is.  We’ve all seen the reports showing that a majority of Americans cannot pass a basic financial literacy test, but this new survey seems further suggest the seriousness of financial illiteracy in the US.  It’s one thing to not exactly understand how a bond works, but if one third of Americans can’t even identify this basic retirement saving vehicle, how on earth could those same folks ever be expected to accumulate enough assets on their own to adequately prepare for retirement?

Read: More Than One-Third of Americans Can’t Describe a 401(k)

To this point, this next article has some pretty staggering stats on the savings habits of these same folks, and it appears the trend is not getting any better. With a median savings of only $6,200 for families between the age of 44 and 49, according to this report from the Economic Policy Institute, it seems safe to say that many Americans are far from adequately prepared for retirement.

Read: Here’s how much the average family in their 40s has saved for retirement

This saving crisis does seem to be prompting some new conversations about the evolution of the concept of retirement. Here’s a different twist on the concept of retirement which speaks to perhaps a changing perception of the term, especially among the younger generations. Maybe for some, retirement doesn’t have to look the same way it did for grandma and grandpa.

Read: The Official New Word That Will Forever Replace The Term Retirement

For those who still seek a traditional path, this next article has some great tips for helping get your retirement goals back on track.

Read: What to Do When You Want to Retire but Don’t Have Enough Money

The articles in this month’s roundup tell an interesting story: that there is a serious financial literacy crisis in this country that develops into a saving crisis when individuals do not have the tools to help them adequately prepare for retirement. For some, this is going to mean they will either have to change how they view retirement all together, or buckle down and get creative on ways to secure their financial future.  Pension benefits like LAGERS are a tried and true tool that allows individuals to focus on pursuing their careers without expecting each individual to also be an expert investor.  The last article this week highlights some of the great benefits of having a pension as a piece of your retirement savings toolkit.

Read: LAGERS is Getting it Right!

Elizabeth Althoff
Communications Specialist

Single? You Have Options at Retirement!

Diner, Senior, CoffeeWhen presenting at a Pre-Retirement Seminar, many of the attendees ask me questions about what their spouse will receive from LAGERS once they pass away. There are a couple of options that married members may choose at the time of retirement that will pay to their spouse upon their death. Read this blog for more information about spousal options.  On the other hand, I do get some questions from single members wondering if they have any options. Don’t worry; even if you’re single, you have some options with your retirement benefit.

The options a single individual has to choose from at retirement are the Life Allowance and Option C. Also, the Partial Lump Sum can be added to each of those options. So, which one do you choose? When determining which payment option to choose at retirement, you may want to consider a few items:

  • What are your fixed expenses in retirement?
  • Do you plan to travel or pursue a hobby that will have an impact on your expenses?
  • Will you have additional sources of income?
  • Are you planning to leave a legacy in the form of inheritance?

All things to consider when choosing your payment option.

Now, let’s explain your options as a single person.

Life Allowance. The Life Allowance is the largest monthly benefit you can receive in retirement. But, when you pass away, there is no monthly benefit payable to a beneficiary. The only instance where there is something payable under the Life Allowance is when you have a balance remaining. This balance can be from the 4% contributions made at any point in your career from which you did not receive a refund or funds used to purchase service (if applicable).

For example, if you have $20,000 in employee contributions, the first $20,000 you receive in your retirement benefit is your employee contributions. Since LAGERS pays out your employee contributions through your retirement benefit, if you pass away before the total of $20,000 has been paid out, your beneficiary will receive a lump sum of the remaining contributions.

Option C. This option is called the 10 Year Payment Certain plan on your benefit estimate. This  can be somewhat misleading because it makes it sound like you will only receive payments for 10 years. There is no option that you could choose under LAGERS that does not pay you for the rest of your life. Option C guarantees at least 120 payments are made to you or your beneficiary in retirement. Specifically, if you pass away within 120 months after retirement, your beneficiary will receive the remaining payments until a total of 120 payments have been made.

For example, if you elect Option C when you retire and pass away 96 months in to retirement, your beneficiary will receive the remaining 24 monthly payments. But, if you live more than 120 months after retirement and pass away, your beneficiary will receive nothing under Option C.

Partial Lump Sum Feature. This feature can be added to the two previous options listed above. It pays you a lump sum 90 days after retirement that is equal to 24 months of your Life Allowance benefit. This option can be a great way to get a large amount of money early in retirement that you could use for many different purposes like paying off your mortgage, leaving a legacy for your children and grandchildren, or many other purposes. Also, you can roll your Partial Lump Sum into a qualified retirement account to delay the up-front taxation, potentially grow the funds throughout retirement, and set the beneficiaries of that account to whomever you choose. Read more about the Partial Lump Sum in this blog post.

So, as you can see, even if you are single, you have some options as to what to do with your LAGERS benefit at retirement. To get an in-depth explanation of your options, attend a LAGERS Pre-Retirement Seminar or call the LAGERS office.

JPabst - reduced size

Jeff Pabst, CRC Senior Communications Specialist

Tagged , , ,

Use These 5 Simple Hacks to Ease Financial Stress

 

April is Stress Awareness Month and we all know that finances are the root of much of the stress we face. If you haven’t ever lost a little sleep worrying about a money-related issue, I would question whether or not you had a pulse. It’s almost inevitable that, at some point, we all will have a financial difficulty that wears on our mind, and ultimately, maybe even our body.

Financial Finesse is a financial wellness firm that offers coaching to over 2.4 million people in the U.S. In the firm’s 2016 Financial Stress Research, they reported that 1 out of every 4 people say that they suffer from high or overwhelming financial stress and 6 out of 10 people reported losing sleep over at least one financial problem. The good news is that there are some fairly simple steps we can take to ease financial stress. Here are some that have worked for me.

Resist the consumerist culture we live in.

My wife and I just recently realized we had too much stuff. Not only did we have too much, we wanted even more. The culture we live in is constantly in our face about purchasing items that are supposed make us happy; new clothes, beauty products, cars, toys for your kids, electronics, apps for your phone. The never-ending assault on our desire for more is relentless. Our home was bursting at the studs with things we didn’t need and all of that stuff was causing stress. So we decided to get rid of it. Anything in our home that is not useful or doesn’t bring us joy is sold, thrown away or donated. And, we have begun to use the same criteria for our purchases. We are spending less money on things that have no lasting value and using those resources to focus on experiences and priorities that truly make us happier. We are still in the beginning stages of this journey, but it’s amazing how much less stress we have.

Create an emergency fund.

According to a recent survey by Bankrate, 57% of Americans don’t have enough cash on hand to cover an unexpected $500 expense. Now that is stressful! Sticking money into an account and resisting the urge to touch it can be tough, but here is a quick hack I have used for years to help with this. Create automatic transfers from your checking account into a savings account. Most of us now have our paychecks directly deposited into our checking accounts and most banks allow you to set up automatic recurring transfers. So, set up money to transfer every payday to a savings account and you will likely not even notice it’s gone. It doesn’t have to be a large amount; it will feel great just to get started!

Make a plan.

Simply having a plan in place to manage your finances can be a huge weight off of your shoulders. Knowing your monthly income and essential expenses is the first step in figuring out a budget and sticking with it. When my wife and I decided she would leave her career and stay home with our girls a couple of years ago, we both lost sleep over the financial impact this would have on our family. So, we sat down together and calculated our monthly income and bills. From there we identified some expenses we could easily reduce (like our satellite bill) and figured out how much we would have left for discretionary expenses (it wasn’t much). Having this plan in place made us both feel better and gave us some peace of mind knowing we could make this work as long as we stuck to the plan.

Talk about money.

Perhaps the most important thing you can do to ease financial stress is to talk to your spouse or significant other about money. These are not always easy or fun conversations and they may even end with one person being upset. But don’t give up. It is vitally important for you and the person you are sharing your life with to be on the same page about finances. A seemingly simple rule my wife and I have always used is that we will ask the other person before we make a purchase that is over a certain threshold. When we were first married and had very little in the way of financial resources, the limit was $50. For example, if I wanted to buy new decoys for turkey hunting and they were going to be more than $50, I had to run it by my wife first. While our threshold has grown since we were newlyweds 12 years ago, we still have this rule in place. It may seem silly, but it is a subtle way to ensure we are both on the same page about how the family’s money should be spent.

Visualize your future.

Your future self wants to be financially independent. Taking steps now toward that end will ease stress today and have a lasting impact later in life. What does your future look like? What do you want do? What will you be doing when you are 65, 75, 85? A great first step in planning for your financial future is to visualize the life you desire. This will help you to know if you are on track today to achieve the life you are picturing. My wife and I frequently talk about our dreams for our life after work and what we want to do. Sometimes these conversations are just two people dreaming together and sometimes there is a little more planning involved, but either way, it is helpful. Be kind to your future self, take action today to reduce stress now in order to avoid tension in the future. Read my blog about this here.

 

Stress can kill. And financial problems are one of the leading causes of anxiety. There are many money problems that may be fixed using simple hacks like the ones above, but for serious issues, you may need to talk to a professional to get help. The key is to take control of your money and allow yourself some better nights of sleep!

 

Jeff Kempker
Manager of Member Services

Tagged , , , ,

Guest Blogger – Pension Re-Reform

 

Jason

Jason Simpson, Fire Captain at Webster Groves Fire Department, describes the process of going from a defined contribution plan to LAGERS defined benefit plan.

THE HISTORY

 

Around 20 years ago, a group of investors sold a retirement plan to our city, a “sure thing plan”, in a stable, somewhat predictable and lucrative market, to give up a 2% per year of service defined benefit plan for a defined contribution 401(k)-type plan that would earn a “million dollars per firefighter” by the time of retirement.

At that time, several retirement ready personnel took a chunk of money and ran, and the rest were left to deal with the repercussions of the oil crisis, horrible terrorist acts, war, and a housing bubble that had burst, leaving the world market in vast fluctuation, generally in a downward spiral. Many watched their retirement dreams become more and more like nightmares. But that was the trend for many corporations and government entities of the time.

Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.

“Defined benefit pensions had become expensive, and defined contribution pensions were the “remedy”.”

But there wasn’t adequate guidance on how absolutely necessary it was to put away the maximum possible contribution PLUS additional money into another fund such as a ROTH or 457(b), especially since we don’t pay into Social Security. Let’s face it, most of us are firefighter/paramedics, not investors, and we entrusted our financial future to our employers. Many of us did not realize that a minimum contribution into a 401(k) alone would inevitably lead to working towards age 65 and living near poverty with a part time job into retirement. Some realized this later because their retirement funds had fallen behind, but there was no safe way to catch up. Those that tried to play riskier investments later in their careers, and especially before 9/11, witnessed worldwide, and personal financial catastrophe along with the devastating loss of life that came with the terrorist attacks.

So that’s the history. Now looking back it didn’t work out so well.

THE CHANGE OF HEART

Now I have some good news.

At a meeting in the summer of 2011, I was strongly encouraged to explore the possibility of doing a financial and actuarial analysis for switching to LAGERS defined benefit pension. Some cities had recently converted, and others were exploring the option. This was news to me, and I was excited that we may have an option for significant change in our retirement structure.

The City council approved the order of the analysis with zero resistance. In January of 2012 LAGERS completed the analysis, and would soon be coming to meet with the city, and then with personnel, to discuss our options. We evaluated costs for different plans, our existing 401(k) cost versus the proposed LAGERS plan, and determining efforts for getting our shop the best level of benefits that our city could consider. We also had help from our finance department in acquiring the actuarial analysis prepared by LAGERS, and additional information for meetings that we arranged with our City Manager. We approached every angle to quickly educate ourselves, and prepare for the vast array of questions we would receive from our shop.

THE RESULT

After a heavily favored city wide personnel vote, the LAGERS plan was moved to the City Council for resolution, and on May 21st 2013, the City Council unanimously approved the “Resolution Discontinuing the Contributions to Non-Uniformed Employees Money Purchase Plan and Police and Firefighters Money Purchase Plan and Adoption of the Missouri Local Government Employee Retirement System (LAGERS)”. This was a monumental event in my career, and I know that with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. We can all have a little comfort knowing what our defined benefit will be here for us, and even if something horrible does happen, our families will be covered, as LAGERS pays our families as if we had worked to age 60 in the event of line of duty death.

 

“…with this change comes an instant and permanent improvement over our career quality for generations to come. From everyday morale, predictable career goals, peace of mind, reward for longevity and retirement with pride and dignity; to immeasurable improvement in death and disability benefits. “

THE FUTURE

We went against the grain in a day where 401(k) plans are continuously replacing defined benefit pensions.. There is obvious improvement in morale amongst my brothers and sisters since this pension change, and I’m proud that some of our senior firefighters are once again forecasting the retirement they deserve. For the rest of us, the light at the end of tunnel has transitioned into a road we can proudly follow with certainty and stability.

Jason Simpson, Fire Captain

Webster Groves Fire Department

(Blog has been edited for length and clarity)

 

 

Article Round-Up

Electronic and paper media concept

All the Best Retirement News We’re Reading This Month

I found many great resources and articles this month relating to pensions and the retirement industry. Read on for some great info.

Retirement confidence and investing go hand in hand. In these 2 articles, read about one of the biggest mistakes older investors make in terms of risk, and the level of confidence workers feel about their retirement security.

Read “The Biggest Mistake Older Investors are Making”

Read CNN Money’s Article on Retirement Confidence

The next article for you is a spotlight on one of our retirees. This article is from last year, but we love to hear and tell the stories about what our retirees are doing after they leave the workforce. If you know of any LAGERS retirees doing great things (and I’m sure you do) contact us and let us know about them!

Read “Vulcan Man Wins Songwriting Award”

It’s true; the face of retirement is changing in many ways. Many retirees leave the world of full time work young enough to have plenty of time to pursue dreams and interests they’ve thought about doing for many years. In “The New Retirement is Not to Retire,” read about 3 retirees with unconventional second acts.

Read “The New Retirement is Not to Retire”

Ever heard of the “Gig Economy”? The term refers to part time, contract and freelance work that is being done in today’s workforce. A lot of retired people decide to work after they have completed their careers. Here are a couple of articles that talk about easy side jobs, such as a virtual assistant or a landlord, and how to turn them into successful income streams.

Read Frugal Rules Article on Great Side Gigs

Read “How to Get the Right Tenant for Your Rental Property”

The last article I wanted to make mention of to you is one from our own blog; last week’s post by Jeff Kempker on what is working and what isn’t in today’s pension reform conversation. What is especially important is the last line in the article, so read to the end.

“We should not be seeking solutions that eliminate any one leg of the stool, but rather, to make those legs work together to provide a more stable base for all Americans.”

Read Jeff’s Article on Pension Reform

Pension Reform Should Not Focus On All-Or-None Solutions

Remember the good ole’ days when retirement planning for most Americans involved income being illustrated as a three-legged stool where the legs of the stool represented 1) income from a pension, 2) Social Security, and 3) personal savings? The thought was that as long as the stool has three legs it will be strong enough to support the person sitting on it. Take one of those legs away, and the stool becomes much less stable. Take two of the legs away and you end up on your back.

So why is it that every time I read about pension reform the proposed solution is always an all-or-none scenario where the pension will be shut down in favor of individual 401(k) accounts? This solution completely removes one leg of the stool (the pension) and reduces the retirement readiness for everyone affected. At LAGERS, we believe everyone who works hard and plays by the rules deserves a secure retirement and that this is best achieved by the three-legged stool approach.

When 401(k)s were first conceived in the late 1970’s, they were never intended to replace pensions, but to supplement the pension plan while allowing employees to defer taxable income. This was originally a great concept – one that furthered the notion of the three-legged stool. But over time, employers have eliminated their pensions and gone completely to the 401(k). The supplement has now become the main retirement income vehicle for many Americans. And it isn’t working. Even if their employer offers a 401(k), two-thirds of Americans aren’t using it to save for retirement.

One of the reasons Americans aren’t saving more is because investing as an individual is hard. Nearly seven of ten Americans cannot pass a basic financial literacy test. The average American worker is just not equipped to know how much to invest, what to invest in, when to re-allocate, and then how to turn their savings into a lifetime stream of income. Also, many Americans simply don’t have the means to go-it-alone in 401(k) accounts. The recommended retirement savings rate for an individual without a pension plan is north of 10% of income. For low-to-middle income workers, this is a daunting, if not impossible task. Pension funds, on the other hand, are invested by professionals and benefit from pooling so that one individual is not taking on all of the market risks.

Watch: Pension vs. 401(k), What’s the Difference?

One argument for moving away from pension plans in favor of 401(k)s is that the individual accounts cannot create unfunded liabilities. This couldn’t be further from the truth. Both pension plans and 401(k)s can create unfunded liabilities. An unfunded liability is established when liabilities exceed assets. In other words, the money you owe is more than the money you have on hand. The presence of an unfunded liability is not necessarily a problem so long as there is a steady, predictable, and disciplined approach to making the required contributions. Individual savers create unfunded liabilities when they fail to save enough for their retirement. When more and more individuals enter into retirement without adequate savings and huge personal unfunded liabilities their only option to sustain themselves in retirement will be to seek public assistance.

The bottom line is this: we need pensions and we need 401(k)s (and similar programs). We should not be seeking solutions that eliminate any one leg of the stool, but rather, to make those legs work together to provide a more stable base for all Americans.

 

Jeff Kempker
Manager of Member Services

Tagged , , , ,

Decoding your Member Annual Statement

business workplace

Very soon, you will be receiving your Member Annual Statement. While this piece of paper may not seem like much, it is a beneficial tool in your retirement planning arsenal. As you may know, your LAGERS retirement benefit will provide you with a secure stream of income when you retire. Coupled with your own personal savings, Social Security, and other sources of income, your LAGERS benefit will help you achieve financial independence when you decide to retire in the future. So, one of the first things that your annual statement may help you do is plan your retirement saving efforts by you knowing how much to expect from your LAGERS benefit.

Your annual statement gives you a wide range of information to interpret. So, I thought I would discuss some of the terminology on your annual statement

  • Personal Information will include your hire date, your date of birth, your vested status and your total years of service credit.
  • What you’ve earned as of December 31, 2016 will show how much you have earned as of the end of the year. In other words, if you were to terminate employment in the near future, this is approximately what your benefit would be at normal retirement age. Keep in mind, this amount is based on your service to December 31, 2016 and as you continue to work, you continue to earn months of service credit that will increase your future benefit.
  • What you could earn if you keep working will show you a projection of your LAGERS benefit if you work until your retirement age. This section shows you how remaining with your current employer under LAGERS will assist you in becoming financially independent in retirement.
  • Beneficiaries this is your current beneficiary(s) listed with LAGERS. If you need to update your beneficiaries, you can do so online through the myLAGERS portal or submit a Change of Beneficiary Form from our website.
  • Your LAGERS Account Balance will show your employee contribution balance including any contributions for purchasing service credit. If you do not make any employee contributions or have not made contributions at any time in your career, the balance will not be listed. This account balance does not have an effect on your benefit amount as your benefit is determined using a formula.
  • Your last 10 years of Salary Reported to LAGERS will show the last 10 years of wages reported to LAGERS. If you do not have 10 years of service under LAGERS, it will show what wages have been reported for the service you have earned.

 

Member Annual Statement vs. Benefit Estimate. The annual statement is an excellent way to understand what your LAGERS benefit will pay you in the future and a great tool to help you plan your retirement savings. However, another tool at your disposal when you near retirement is a benefit estimate. The benefit estimate has some similar functions to your annual statement, but it is a benefit projection based on an estimated retirement date you provide. Additionally, benefit estimates illustrate each of your available payment options, including the partial lump sum and what your potential beneficiary would receive with each option. You can generate and save benefit estimates on the myLAGERS portal 24/7. If you’re not signed up for a myLAGERS account, simply click this link and click “Enroll Now.” However, if you do not wish to have a myLAGERS account, you can have an estimate mailed to you by calling the LAGERS office at 1-800-447-4334.

So, the next time you look at your retirement savings plan, be sure to look at your annual statement to help you know what to plan on from your LAGERS retirement benefit. As always, if you have any questions regarding your statement or any other aspect of your LAGERS benefit, feel free to contact the LAGERS office!

JPabst - reduced size

Jeff Pabst, CRC Senior Communications Specialist

 

Tagged , , ,

We’ve got the answers to your LAGERS’ FAQs!

When it comes to the employee benefit package offered at your employer, all that information can feel overwhelming. Every benefit has different rules, different enrollment periods, different ‘must knows.’   It’s enough to make your head hurt. We get tons of questions emailed to us every month from members wanting clarification on a part of their LAGERS benefit, so  I thought this month, I would take a survey of some of the most commonly asked questions. Hopefully this week’s blog can help simplify at least a few of your FAQs when it comes to LAGERS!

What happens to my LAGERS benefit if I quit?

It is quite common these days for an employee to have two or three different jobs (or more!) during a working career. It comes as no surprise that one of the most common questions we get at LAGERS is ‘what happens to my benefit if I quit?’

Here are a couple must-knows when it comes to changing jobs:

  • Vesting is important. Make sure you know whether you are vested when you leave because vesting is what determines your options for your LAGERS benefits when quitting a job.
  • If you are vested, you can go ahead and apply for a deferred retirement benefit if you don’t think you will work in the LAGERS system again. That way when you are age-eligible for your benefit to begin, the paperwork is mostly taken care of already!
  • LAGERS doesn’t need anything from you if you plan to change jobs and are moving to another LAGERS employer. You will simply complete a new enrollment form at your new employer and your benefit will continue to grow, it’s that easy!
  • Beware of the member contribution refund. While this may be the best option for some, refunding your member contributions results in a forfeiture of service credit. This means that if you take a job in the future with another LAGERS employer, your service starts back at zero, and it will take you 5 more years of work to vest in a new benefit.

Check out our blog on this topic to learn more!

Is my benefit taxable?

Yes, LAGERS benefits are subject to both state and federal income tax. However, there are some great tax benefits that LAGERS retirees may be eligible to take advantage of, such as the Missouri Public Pension Exemption. Visit our website to learn more.

What is pension funding?

You hear a lot of buzz about pension funding in the media. Simply put, a pension funding ratio is the measure of assets verses liabilities, or how much money is on hand to pay out promised benefits. It is important for retirement plans to properly fund benefits, so that when employees retire, there is money available to pay those benefits. Your LAGERS system has extremely sound funding policies, and as a system, is almost 95% pre-funded! LAGERS members can retire with the peace of mind in knowing that their hard-earned benefit will always be there for them.

Are their hardship withdraws in LAGERS?

No, LAGERS does not allow hardship withdraws or refunds of contributions to employees actively working in the system. Why? Because LAGERS takes those contributions and puts that money to work in the markets. Because over 60% of a member’s benefit is funded through investment return of the system, having your contributions working for you 24/7 is crucial making sure that we can guarantee a secure retirement in the future.

How do I update my address or beneficiaries?

Easy! Log on to your myLAGERS account and both can be quickly updated online. If you’d prefer the paper forms, here they are:

Don’t see the answer to your LAGERS’ FAQs?  LAGERS staff is always here to answer your questions.  Feel free to call or email our office to speak with a LAGERS representative today!

Elizabeth Althoff
Communications Specialist

Guest Blogger: The Public Pension Blues

It has been taken as an article of faith for the past two or three decades that our public institutions are irreparably broken. Beginning with the inauguration of Ronald Reagan in 1981, both of our major political parties have worked tirelessly, it seems, to accelerate deregulation and privatization of many public goods and services, often without full regard for the consequences. By the time Bill Clinton declared that “the era of big government is over” in 1996, conventional wisdom had hardened around the idea that private is better than public every time, and that deregulation would inevitably deliver a higher standard of living, and more efficient social services, for everyone.

Needless to say the jury is still out on that one. This past year bore witness to the consequences of this approach to governing as many voters fed up with slow wage growth and limited options in an economy that they were told had fully recovered from the Great Recession chose to turn their backs on the political establishment by electing the ultimate outsider as president, a TV personality with no experience whatsoever in government.

One casualty of the war on public services is pensions. I know, I know—there are more than a few public employees out there we’d love to put out to pasture, sooner rather than later. That’s what makes this such a sexy topic: without any decent incentive to retire, some old teachers are like old ballplayers. First, they move from behind the plate to the outfield because their offensive skills are good but their defensive skills are lacking. Then they move from the outfield to first base because their deteriorating defensive prowess has become too much of a liability to the team. Then they move from first base to the bench, where they can function reasonably well, the American League at least, as designated hitters—because when your main competition for a spot in the batting order is a pitcher, the bar is set pretty low. Sometimes it’s easier to trade on past glory than on current productivity.

But I digress. My point is that a good retirement incentive is good for everybody. It’s good for some veteran employees who may find their best days in the rearview mirror to get on while the getting’s good, and it’s good for younger workers trying to secure a place in a profession. I mean, would you rather watch an aging Jose Canseco flail at fastballs or watch the next Mike Trout get his chance? I know which one I’d prefer.

It may be this kind of thinking, in fact, that encouraged legislators in Pennsylvania, where I live, to increase benefits for public retirees back in the early 2000s, when times were good. It actually might have made some economic sense, too: if times were good—and let’s remember here that they were pretty good, and no one, I mean no one, not anyone, could have foreseen that any kind of bubble might burst at the time—then increasing benefits might have seemed like a great idea. After all, there were new technologies being employed in every sector that seemed to herald an era of stable growth and prosperity. In that kind of environment, it might have made sense to encourage more teachers and other public employees to retire and make way for new workers eager to take their place, and to give those outgoing employees a retirement benefit that would serve their needs in case the growth continued. It can be easy to forget that defined benefits can cut both ways.

Alas, it was not meant to be. We all know the story: the market crashed, people had their savings wiped out as real estate values tanked, and a new era of cynicism, anger, bitterness, and uncertainty set in. It didn’t help that Congress offered up $700 billion to prop up the banking system (although it should be noted that the next Congress also offered a huge stimulus that helped many everyday people, even if it was pilloried as a waste of money by free market ideologues terrified that government spending would only make things worse). The federal government may have favored stimulus but in the states the reaction was the opposite: everything was reined in. Some public schools, for example, still have not recovered. And then that same Congress faced an electoral bloodbath in 2010 from which it could be argued the country, and economic policy, have still not recovered.

But I’m digressing again. Here’s my second point: it’s easy to dismiss the decision by state lawmakers here in Pennsylvania to increase benefits for retirees as just another example of bad decision-making spurred by pressure being put on legislators by special interest groups like the much-reviled teachers unions. But there may be other explanations. In fact, our willingness to lean on this one explanation suggests that something is, in fact, very broken in our democracy. We’ve become so cynical that the only way we can process a decision that has far-reaching negative consequences is to attribute it to bad behavior. There’s good reason for that, I guess—you know what I mean if the words “Iraq,” “Watergate,” and “Lewinsky” mean anything to you—but at some point we have to be more circumspect on our analysis of how the political system works if we actually want it to work.

This is at the heart of discussions I’ve been having about pensions and about the best way to compensate teachers and other public employees at the end of a long career. Some facts are indisputable. First, and most obviously, the crisis we are facing is a huge one, and there is no easy way out. Pennsylvania is not the only state dealing with this problem, but the mountain it has to climb is as steep as any. It’s also true that most teachers do not receive full benefits from their retirement plans because they leave the profession early—that much is obvious—and it’s true that making benefits more “portable” makes a lot of sense.

But this is also where I part ways with others. They seem to believe that the solution to the problem is to convert all of our public pension plans into private retirement accounts, which is a perfectly conventional thing to think these days. The idea here is one we’re all familiar with: instead of offering a defined-benefit plan, these folks would have public employees converted to defined contribution plans. But here’s the catch: in a defined contribution plan, the contributions may be defined but the benefits are not. Contributions are invested, and the payout depends on how well those investments do. Yes, it’s true that these are mostly considered “safe” investments, investments in things like mutual funds or bonds. But they are investments nonetheless, and there is risk involved.

What kind of risk, you might ask? Well, ask anyone who served in Pennsylvania’s General Assembly back in the early 2000s. You might be surprised to know that many state pension funds are also invested: the state takes the contributions of future beneficiaries and its own contributions and invests them as well. The money doesn’t just sit around collecting dust. So if the market fails to perform someone has to make up the shortfall. The difference, of course, is that states are required by law to protect the investments employees have made. They’ve made a promise by defining the benefits employees will receive when they retire. The crime Pennsylvania committed was not increasing benefits; it was failing to feed the kitty when its investments were eviscerated by the market crash.

Of course in today’s uncertain economic climate that promise is really hard to keep. It’s even harder to keep because public opinion has increasingly coalesced around the idea that defined benefit plans cannot work. More than a few well-intentioned critics of government ineptitude seem to have bought it too. Sometimes I wonder if I shouldn’t. It all sounds so compelling. If only we could find some examples of places where pension plans are actually working…

Oh, wait; here’s some evidence. If you follow the link you can see that some states and localities actually have very healthy pension funds. In fact, much of the bad press given to failing or overly generous pension plans in some states can be attributed to what one author calls “pension envy.” Some of it may link back to the great and suggestive name of Missouri’s plan (“LAGERS”), a name anyone could envy, but much of it probably stems from the fact that 401k-type plans are simply not working for most American workers. No surprise there, because they never were meant to. The 401k was conceived as a supplement for traditional pension plans, not a replacement for them.

This explains the pension envy: people look at the puny savings they have collected for retirement in their IRAs and read about how public employees are doing better than they are—and then, rather than ask “why is my retirement plan so bad?” they ask “why is theirs so good?”

In a rational world we would look at examples of things that actually work and try to build from there, instead of looking at the ones that don’t and using them as a starting point. But of course it makes sense to begin from failure if you’ve already decided what you want the solution to be. It also makes sense to do that if you have convinced yourself that all of our existing institutions and ways of doing things are inherently flawed and irreparably broken. I’m willing to match my contrarianism up against anyone’s on most days, but I’m not so much of a cynic that I can believe that everything we’ve ever created was created in bad faith. I’m also not so cynical that I can believe that nothing we have is worth saving. Chalk it up to blind, stupid, naive faith in the idea that people will do what’s good for others when they see that it’s good for them too. I know I benefit when everyone has a social safety net because providing one for them is more efficient and less expensive than trying to piece together a fix in the middle of a crisis.

In the end, an ounce of prevention is worth a pound of cure. It seems to me that our growing cynicism toward public things, public employees, and government itself, is feeding a frenzy to dismantle a system that, with a little responsibility and an equal amount of commitment, could function very well indeed. Wouldn’t it be nice if we could strike a balance between bloated big government and good government that actually delivers on the promise of improving people’s lives instead of adding frustration to them? Maybe we can work on that before the next election rolls around.

img_0253-crop

Dave Powell

—–

Dave Powell is Associate Professor and Chair of the Education Department at Gettysburg College. A modified version of this article first appeared in the regular column he writes for Education Week as “The K-12 Contrarian.” Follow him on Twitter @profpow.

Facts about Presidents and Pensions

In honor of President’s Day this week the history buff in me decided to look up some facts relating to how Presidents have dealt with pensions and pension legislation over the years. I found out some unique facts, and, since I am still somewhat new to this industry I learned quite a bit. Here are just a few.

Pensions go back to colonial days when their original intent was to lure people to become involved in the military. As the country came together and prospered, pensions became a strong force, mostly controlled by the federal government.

By 1886-87, during Grover Cleveland’s presidency, pensions had grown too fast and too large, and President Cleveland began tightening the reigns in the hopes to preserve the system and make it stronger. Cleveland vetoed many bills throughout his terms in the White House, and over half of them involved some sort of pension reform. He wanted to preserve the legitimacy of the pension system by making sure that the programs were legitimate and appropriate for the people.

grover-cleveland-pension-quote

Grover Cleveland Pension Quote

In 1912 the first Presidential pension legislation was brought forth to provide pensions for former presidents. It failed. Legislation was not approved until 1958, when President Eisenhower signed the Former Presidents Act to allow pensions for former presidents upon leaving office.

When Truman accepted his pension, Herbert Hoover was the only other living president. While Truman needed the pension, Hoover was a multi-millionaire who had never even taken the presidential salary. He took the pension however, so that he would not embarrass Truman.

presidents-day

Truman and Presidential pensions

 

In 1974, President Nixon resigns in the wake of the Watergate scandal. The department of justice ruled that Nixon gets to keep his presidential pension since he was not removed from office, but resigned voluntarily. If he would have been removed from office involuntarily, he would have lost his presidential pension.

Some presidents, such as George W. Bush and Bill Clinton, have been fortunate enough to receive  pensions for many years, mostly because they were relatively young when they left the presidency and have lived many years after retiring.

Interesting stuff huh? I hope you enjoyed your President’s Day, and this little history lesson. For the past 50 years, LAGERS has been, and continues to be an active force to maintain the integrity and legacy of pensions and their effect on the economy and the lives of their recipients. And while our history doesn’t go back to the very beginning, we’ve been around long enough to celebrate our golden birthday and will be here for you for many, many more. For more information on LAGERS history, check out our website and watch our social media channels for updates throughout this very special year in our history.

 

 

 

%d bloggers like this: