Category Archives: Retirement

When the City Goes Broke: Pensions, Retirees, and Municipal Bankruptcies

Source: Kevin M. Lewis, Congressional Research Service, CRS Legal Sidebar, LSB10116, April 10, 2018

In recent years, a significant number of cities, towns, and other municipalities in the United States have found themselves increasingly unable to pay their debts. In order to offer municipalities relief from many types of debts they cannot repay, Chapter 9 of the Bankruptcy Code authorizes certain municipalities to file for bankruptcy. However, filing for bankruptcy may adversely affect the municipality’s creditors, especially beneficiaries of underfunded municipal retirement plans (who, along with bondholders, often hold “the lion’s share” of a municipality’s financial obligations). Because a number of municipalities face a “dramatic and growing shortfall in public pension funds,” many “firefighters, teachers, police officers, and other public employees” who purportedly have “a right to pension benefits at retirement” face a significant risk that their pensions will ultimately not be fully repaid. The fact that public pensions, unlike their private counterparts, are neither subject to the “vesting and funding rules imposed by” the Employee Retirement Income Security Act of 1974 nor “protected by the federal pension guarantee program operated by the Pension Benefit Guaranty Corporation” could, according to some commentators, further exacerbate that risk. Moreover, because courts presiding over municipal bankruptcy cases have generally been “amenable to modifying pension debt in bankruptcy,” retirees’ pension benefits may potentially be significantly curtailed when a municipality declares bankruptcy. Although many Chapter 9 debtors have ultimately opted not to cut pensions “for political or practical reasons,” courts and commentators generally accept that, under certain circumstances, municipalities “have the legal ability to shed pension debt” in bankruptcy if they so choose.

This Sidebar first explains how, under current bankruptcy law, Chapter 9 debtors have significant freedom to modify their outstanding pension obligations through the bankruptcy process. The Sidebar then explores proposals to alter the legal principles governing the adjustment of municipal pensions in bankruptcy….

Retirement Planning Decisions: Choices Between Defined Benefit and Defined Contribution Plans

Source: Susannah Bruns Ali, Howard A. Frank, The American Review of Public Administration, OnlineFirst, Published April 12, 2018
(subscription required)

From the abstract:
As states move toward offering defined contribution retirement plans as an alternative or addition to traditional defined benefit pensions, they need to consider the preferences and long-term consequences for different groups of employees. This study looks at which plan employees choose when given the option of either a defined contribution or defined benefit plan. The strongest driver of that choice is education level where the most educated prefer defined contribution plans and the least educated stay in defined benefit plans. A unique contribution of this study is that we include region of origin as a study and determine that cultural differences influence plan selection. The study also explores the role of sex, age, and tenure. Challenging other studies on financial planning, these findings indicate that sex and age are not significant factors. This research was conducted using data from more than 4,000 employees from Florida International University and an interview with HR professionals. By understanding retirement preferences in a more nuanced way, we can better craft our approaches to retirement security and financial literacy training in public sector organizations.

Understanding Decisions in State Pension Systems: A System Framework

Source: Gang Chen, The American Review of Public Administration, Vol. 48 no. 3, April 2018
(subscription required)

From the abstract:
State governments establish pension systems to provide retirement benefits to public employees. State governments as sponsors, state legislatures as policy makers, and public-sector unions as representatives of public employees may exert considerable influence over the decisions made in pension systems. This study applies a system framework to examine these influences. It focuses on four decisions in pension systems: benefits, employer contributions, employee contributions, and the asset smoothing period. The findings show that changes in the short- and long-term financial conditions of a state government have different influences on pension decisions, and that legislatures and public employee unions play important roles that affect these decisions.

The investment industry threatens state plans to help workers save – States wrestle with impending retirement crisis as pensions disappear

Source: Jared Bennett, Center for Public Integrity, April 2, 2018

…..Since 2015, Oregon and four other states ­­— California, Illinois, Connecticut and Maryland — have set up these so-called “auto-IRA” programs overseen by the state. Nine more states are considering similar programs this year, among them New York, Missouri and Pennsylvania.

But the investment industry is standing in the way, aggressively deploying trade groups and raising the specter of legal threats to stop the proliferation of these plans. Behemoths such as the National Association of Insurance and Financial Advisors and the U.S. Chamber of Commerce oppose the plans because they argue the private sector already provides options for workers like Kono. But many small businesses, such as Annastasia Salon, find the private plans too expensive.

The industry’s lobbying efforts look to be winning, as proposed state-run retirement plans are languishing in statehouses around the country…..

2017 Workplace Benefits Report

Source: Bank of America Merrill Lynch, ARKRNPFQ, 2017

From the summary:
Bank of America Merrill Lynch works with employers across the country to help provide employee education, guidance and retirement plan solutions that help employees take charge of their financial lives. As part of this ongoing effort, we conduct an annual study — the Workplace Benefits Report (WBR) — to talk to employers and employees about retirement readiness and larger financial wellness topics. Our current report examines how employees feel about their financial situation and the role employers play in supporting their overall financial wellness.

On behalf of Bank of America Merrill Lynch, Boston Research Technologies conducted an online survey with a national sample of 1,242 employees between September 22, 2016 to October 7, 2016. Understanding the ever-evolving retirement landscape, monitoring and keeping abreast of these key indicators and opinions, helps us empower employers to stay ahead of the curve while helping meet the varied needs of their employees.

Related:
/2017_WBRInfographic_R6_060217.pdf”>Infographic Presentation
Millennials Supplement
Healthcare Supplement

The perk your employer is most likely to give you, and it’s not a raise
Source: Maria Lamagna, Marketwatch, March 27, 2018

The Retirement Outlook for Millennials: What Is the Early Prognosis?

Source: Richard W. Johnson, Karen E. Smith, Damir Cosic, Claire Xiaozhi Wang, Urban Institute, March 27, 2018

From the abstract:
Social, economic, demographic, and public policy shifts have made Gen Xer and millennial retirement security a pressing concern. In this report, we combine data from multiple sources to project how various forces might play out over the next 30 years to shape the retirement security of late Gen Xers (born in the last half of the 1970s) and early millennials (born in the first half of the 1980s).

U.S. tax law fuels changes to employee benefit and compensation programs

Source: Willis Towers Watson, February 21, 2018

Willis Towers Watson’s recent pulse survey on impacts from the new tax law reveals that the most common changes organizations have made or are planning or considering include expanding personal financial planning, increasing 401(k) contributions, and increasing or accelerating pension plan contributions. Other potential changes include increasing the employer health care subsidy, reducing or holding flat the employee payroll deduction, or adding a new paid family leave program in accordance with the Family Medical and Leave Act’s tax credit available for paid leave for certain employees.

Related:
Press Release

Millennials’ Retirement Saving Behavior: Account Ownership and Balance

Source: Rui Yao, Guopeng Cheng, Family and Consumer Sciences Research Journal, Volume 46 Issue 2, December 2017
(subscription required)

From the abstract:
Among the generations, the Millennials are the largest group in the United States. Compared with their parents and grandparents, the Millennials need to assume more responsibility to prepare financially for retirement. Few studies have analyzed this generation’s retirement saving behavior. Using data from the 2013 Survey of Consumer Finances, this study examined the state of Millennials’ retirement savings, including retirement account ownership and balance. Results showed that only 37.2% of Millennials had any account designated for retirement. Among those with a retirement account, the average accumulated amount was $21,333. Factors that affected retirement saving behavior included age, education, total household income and assets, job tenure, self-employment, having a retirement saving motive, having a defined benefit plan, overspending, and risk tolerance. This study provided insight that can help financial planners and educators, as well as policymakers, understand the Millennials’ current retirement savings behavior. Also, the results can help the Millennials engage in saving for their retirement.

Related:
Awfully few millennials have retirement accounts
Source: Sheena Rice, Futurity, March 6, 2018

Millennials and Retirement: Already Falling Short

Source: Jennifer Erin Brown, National Institute on Retirement Security (NIRS), February 2018

From the summary:
A new report finds a deeply troubling retirement outlook for the Millennial generation. Most Millennials have nothing saved for retirement, and those who are saving aren’t saving nearly enough. The report indicates that many factors are contributing to this generation’s retirement savings challenges – from depressed wages to the lack of eligibility to participate in employer retirement plans.

More specifically, the analysis finds that 66 percent of working Millennials have nothing saved for retirement, and the situation is far worse for working Millennial Latinos. Some 83 percent of Latinos in this generation have nothing saved for retirement.

Related:
Press release