NIRS submits a response to the July 13th USA Today editorial. The paper is on the receiving end of misinformation regarding pensions and retirement security. It’s also unfortunate that the editorial pits workers with some hope of retirement against workers most vulnerable – those lacking pensions.
The implication that defined benefit plans no longer exist in the federal government and have evaporated in the private sector is incorrect. The Federal Employee Retirement System incorporates both a traditional defined benefit pension (the “basic benefit”), as well as a retirement savings plan with an employer match (the “thrift plan”). A recent survey of CFOs conducted by Towers Perrin indicates that the vast majority of firms with pensions remain committed to these plans.
Companies and governments continue to offer pensions for a simple reason – they know that pensions offer a better “bang ” for the retirement buck. In order to achieve a target retirement income, a defined benefit pension can do the job at about half the cost of a 401(k)-type plan. We (and others) have done the math on this.
Dismantling public retirement systems would do absolutely nothing to help millions of at-risk Americans to achieve a secure retirement. To the contrary, it would simply exacerbate the problem of widespread retirement insecurity.
Middle-class teachers, firefighters, and other public servants are able to earn a modest retirement because they pay a portion of every paycheck into a professionally managed, pooled pension plan that operates at a very low cost. Public employers also contribute and because of this pre-funding approach, over time, investment earnings do most of the work of financing retirement benefits. The median public pension benefit is about $1,750 per month, according to our calculations – not exactly “wildly generous,” but enough to cover basic needs in retirement and to remain self-sufficient in old age.
The solution to our nation’s retirement challenge is not a race to the bottom where no Americans have a shot at a decent retirement. Rather, the solution is to raise the bottom and provide all Americans with access to a low-cost, professionally managed retirement program that allows them to share responsibility for financing their retirement years, just as public pensions do.
It’s disappointing that USA Today is relying on inaccurate information rather than addressing the real issue – finding solutions to rebuilding our crumbling retirement infrastructure.
National Institute on Retirement Security
Read the full letter to the editor here.