In Focus: Our public employee pension plan works

May 30, 2014 

Public employee pensions are increasingly under attack around the country. Retirement security is part of the American Dream, a promise that those who work hard and play by the rules will not be plunged into poverty when they can no longer work. Yet the argument for the destruction of retirement security for all working people, not just those in the private sector, keeps resurfacing. I think it’s important to set the record straight. First, Washington has the fourth-best funded public pensions in the country with a 95 percent funded status, according to the Pew Center on the States. In addition, the Washington State Investment Board has one of the highest investment returns in the country, leading many other states to inquire about its approach. In fact, the State Investment Board reports that 84 cents of every dollar in pension payments is earned through investments. Washington public pensions are also modest, with an annual pension averaging only $22,200, according to the Office of the State Actuary. The next important fact is that the private sector's 401(k)-style plans are failing. According to the National Institute on Retirement Security, about 45 percent of all working-age households don’t hold any retirement account assets, whether in an employer-sponsored 401(k) plans or an individual retirement account. Among those 55 to 64 years old, two-thirds of working households with at least one earner have retirement savings less than one year's income, far below the recommended amount for a secure retirement. While 401(k)s are also roundly criticized for their excessive fees, lack of informed guidance and employer neglect, the bottom line is that they are failing because they were never meant to be a pension plan and are a poor substitute. Retirement security is based on the three-legged stool: Social Security, a defined benefit pension and savings. Congress created 401(k) plans in 1978 to provide a tax-beneficial way for corporate executives to supplement their pensions. Though many have been advocating for the switch of public employee pensions from a defined benefit style to a defined contribution 401(k), overall most state legislatures did not pursue that approach because of an actuarial analysis that indicated closing defined benefit plans would not only fail to address the shortfall, but could also increase costs to the state. West Virginia was one state that learned that hard lesson when it switched teachers hired after 1991 to a 401(k) pension. By 2005, teachers approaching retirement on average only had $25,000 in their accounts and could not retire without public assistance. The state cut its losses by closing the plan and reopened the pension plan for new teachers. The state of Washington is a national model for public employee pensions. With so many hard-working Americans struggling to achieve a decent retirement in a 401(k)- dominated system that most agree is a failure, why would anyone want to eliminate the retirement security that Washington has been able to achieve for public employees? The question should be how we can establish retirement security for all. w Maria Britton-Sipe is the executive director of Retired Public Employees Council of Washington.

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