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Posts Tagged ‘retirement’

Young Teachers Deserve Retirement Protections, Too

September 24th, 2014

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How does it feel to lose $11,000 and know you’ll never get it back? This past week I discovered that I lost just that amount in retirement savings because like roughly half of America’s young teachers, I taught for fewer than five years.

Randi Weingarten, president of the American Federation of Teachers, made a startling admission on a recent segment of “Morning Joe.” She said fighting teacher tenure laws was pointless because most teachers in American classrooms today have less than two years of teaching experience. While that figure is a slight exaggeration toward the low end, Weingarten is right in recognizing that the teaching profession looks drastically different — and newer — from before.

Despite this, most teachers still find themselves paying into a pension system that is a relic left from a time when educators stayed in the same job in the same place for an entire career. Teachers in most states receive defined benefit pensions that are based on a backloaded formula that factors in salary and years of service: teachers receive minimal benefits in their early years, but are rewarded quickly and heavily as they near retirement age. The rules of these defined benefit plans reward longevity and punish mobility — even mobility within the profession between school districts or states. It works if you stay in one place and keep teaching, but doesn’t if you switch careers or move out of state, which is what I did.

When I left a Los Angeles Unified School District classroom after three years and moved to Washington, D.C., I learned that three years of employer contributions to my retirement became three years of donations to someone else’s. Since California requires five years of teaching to vest in a pension (19 states require 10 years), I was only entitled to recoup the 8 percent annual contribution that was deducted from my paycheck each pay period. I was forced to cede back to the pension program the 8.25 percent of annual contributions that were made — ostensibly on my behalf by my employer — an amount totaling more than $11,000. Invested very conservatively, this money would be worth at least $35,000 when I get ready to retire one day — but realistically several times that based on historical returns or what state pension funds expect to earn.

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More on our Minimum Pension

April 10th, 2014

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We appreciate EPI’s comments on our New York Times op-ed in which we unveil a new proposal for a minimum pension. Ms. Morrissey poses several questions and calculations that we wish to answer.

Ms. Morrissey argues that a life-cycle account with its mix of stocks and bonds is too aggressive an investment for worker pensions. We respectfully disagree. However, this is immaterial because investors in our Savings Plan for Universal Retirement (SPUR) accounts would have a choice of fund options just as federal employees have today under the Thrift Savings Plan (TSP). Individuals could choose less aggressive or more aggressive options, but each fund would be well-diversified. The TSP, with fees only a fraction of those charged for 401 (k) plans, is working well for millions of current and former federal employees. A similar set-up, with low fees and diversified funds, should work well for everyone else.

Ms. Morrissey’s estimated cost to business is wildly inflated. She asserts the plan would generate new costs for the employers of all 165 million workers covered by Social Security. To reiterate from the op-ed, any employer that provides a retirement plan that is at least as generous as our proposal would face no new requirements. That would include virtually every public employee, teacher, cop, nurse, firefighter, municipal trash collector, and congressional employee. Practically any private company that provides a defined benefit or defined contribution to a plan would fulfill the requirement. That includes most white collar jobs, most union jobs, as well as jobs at think tanks like Third Way and, presumably, EPI. And as our forthcoming idea brief will explain, those who have already reached retirement age, would not have to participate.

According to the Employee Benefit Research Institute, 43 million full-time, full-year workers ages 21-64 are not currently enrolled in an employer-sponsored plan. Another 30 million part-time or part-year workers in the same age group would be affected, but their enrollment would be less expensive since the cost is based on hours worked. So in total, the magnitude of required new contributions would be about one third of what Ms. Morrissey estimates. More importantly, this is not a lost cost to businesses. It will improve the quality of their employment packages and raise the compensation of their workers. And, unlike health premiums, a minimum pension is a fixed, predictable, cost.

Still, the cost to business is real, particularly in the near-term, because wages are “sticky-down.” That is, employers are averse to cutting wages in nominal terms. So they are likely to bear most of the cost in the early years. To help employers start contributing—and to keep even modest downward pressure on working people’s wages at bay—government can pick up some of the tab. For example, modest adjustments to the maximum allowable contributions to 401 (k)-type plans would raise nearly $100 billion, according to the CBO. This revenue could be applied to help offset the costs to small and medium-sized businesses.

Ms. Morrissey also writes that workers could still outlive their savings if they opt out of an annuity and take their nest egg in a lump sum at retirement. Our plan’s default option is an annuity, which would last for the life of the owner, because we think that’s best. But if a worker prefers to take a lump sum or withdraw at her own pace, she should have that right. After all, it’s her money.

Finally, there is Social Security. Our proposal has no more impact on Social Security than private sector retirement plans do now. And nothing in our proposal will change the fact that Social Security is scheduled to become insolvent in 2031. Some believe solvency should be achieved by raising taxes alone. Some believe it should be achieved solely by cutting benefits. And some believe it will require a combination of the two. We fall into the latter category and believe it can be done while increasing benefits for low-income seniors. But that is separate and apart from our minimum pension proposal.

Capitalize Workers!

April 7th, 2014

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Raising the minimum wage has justifiably captured policy makers’ attention, but if the goal is to materially raise living standards for every American worker, we should also be calling for a minimum pension. Done right, this would not only create real wealth for the middle and working classes, it would use the power of financial markets to reduce wealth disparity instead of widening it.

There is a vast difference in the way the wealthy and the rest of Americans earn their money. In 2010, 60 cents of every dollar earned by those in the top 1 percent came from investments and businesses they owned. For the middle class, it was 6 cents.

For decades, the returns to capital have far outstripped the returns to labor. Before the mid-1980s, worker salaries constituted 65 percent of national income. In 2012, they were 58 percent. Economists rightly fret over how this contributes to wealth inequality. Well, if you can’t beat ’em, join ’em. If all working people, whatever their wage, could get a piece of these gains, it would improve their financial well-being exponentially. This is where the minimum pension comes in.

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Fixing Social Security is progressive

January 20th, 2011

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This piece was originally published in Politico.

Last week, 200 progressive organizations launched a public campaign directed toward President Barack Obama that argues against any fix to Social Security that would touch future benefits. This is not only bad for Social Security; it’s not particularly progressive.

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