The Future of Public Retirement Systems
The future of public retirement systems in America is not exclusively pensions. There are already 14 states offering another kind of retirement plan. And given the lack of serious attention being paid to growing unfunded liabilities, political headwinds are blowing against pensions. States are very likely to continue shifting away from offering all of their public employees pensions.
As these shifts occur, there are important questions for states to consider, including:
- Will pension benefits be preserved for some? Most states that have started offering alternative retirement benefits have also continued to provide a guaranteed income pension option. Some states, however, (Alaska, Kansas) have not done so for teachers, and other states (Arizona, Oklahoma) and many cities have not done so for other kinds of workers.
- Will guaranteed benefits of some kind be preserved? Kansas may have closed its legacy pension plan to new teachers, but it still offers a guaranteed return plan. Similarly, states such as Michigan, Tennessee, Utah, and Virginia are no longer offering a guaranteed income-only plan but offer Hybrid plans that include some portion of the benefit as guaranteed.
- Will retirement plan designs of the future be built for retirement adequacy or cost savings? The guiding principle for many so-called “pension reform” efforts over the past decade has been to try to reduce costs. States that continue to offer pension benefits have regularly cut the value of their pension offerings for new employees. States looking to Defined Contribution plans have thought of them as cost savers. But both of these approaches are putting the cost objective ahead of quality and retirement security. And if a retirement plan is not adequate to use for retirement, then it shouldn’t be called a retirement plan—just a deferred compensation savings plan.
As state leaders consider these questions, there are models to draw on from other states and their management of teacher retirement benefits over the past few decades.