Public Pension Benefits Dip in Value, Especially for Short and Mid-Term Workers
A new report by Equable Institute evaluates how public pension benefits have dropped in value over the past two decades.
According to the second edition of its Retirement Security Report, retirement benefit values have declined by more than $140,000 for full-career public employees since 2006, mainly due to policy impacts following the 2008 recession that resulted in higher retirement ages, longer vesting schedules, and reduced cost-of-living-adjustments (COLAs).
Equable describes full-career workers as employees who have stayed within the same retirement plan, whether that’s a pension, defined contribution (DC) plan, guaranteed return, or hybrid plan, all throughout their career.
Full-career workers can still earn an adequate retirement income despite the drop, but those who leave public service earlier risk falling behind on savings, Equable warns. While 76% of full-career workers say they are served well by their retirement plans, a smaller number of 17.6% of short-term-career workers agree. Small-career employees are classified as workers who leave their roles before 10 years of service, while medium-term workers are those who serve between 10 to 20 years.
The report challenges the long-held idea that public service work will always offer secure benefits and stability to employees and adds that newer plans implemented in recent years could better service short-and medium-term workers. For example, Equable finds that only 24 out of 229 state pension plans currently provide enough benefits to help medium-term workers achieve retirement security. Pension plans that work for short-term employees usually involve higher contribution rates from workers.
“This report makes clear that far too many public employees are not actually on a path to financial stability in their later years,” noted Jonathan Moody, Equable Institute’s senior vice president of Research, in a statement. “At a moment when millions of Americans are struggling to keep up with the cost of living, ensuring that public workers have reliable and adequate retirement benefits is not just a workforce issue; it’s a cornerstone of long-term economic security and affordability in the United States.”
New plans created within the past decade to 15 years are likelier to offer increased portability methods, including hybrid plans and primary defined contribution (DC) plans, adds Equable. The two retirement plans that served all members well were the South Carolina Retirement System’s “Optional Retirement Plan,” a DC plan, and the Tennessee Retirement System’s “Hybrid Plan.”
Equable’s report evaluated 1,953 retirement plans across the nation, including 1,247 legacy plans, to determine retirement income adequacy.
Amanda Umpierrez is the Managing Editor of 401(k) Specialist magazine. She is a financial services reporter with nearly a decade of experience and a passion for telling stories and reporting news. She is originally from Queens, New York, but now resides in Denver, Colorado.