Ticking Time Bomb: The Retirement Gap
Over eight years ago, the Florida Public Pension Trustees Association warned local governments that 401(k) accounts could not replace traditional guaranteed retirement plans. We issued a white paper titled, “401(k) Accounts Are Not Retirement Plans,” relating the details of our position.
Our case rested on two major premises: without guaranteed retirement plans, employers will have difficulty recruiting and retaining qualified employees; and 401(k) accounts do not guarantee nor provide adequate retirement income for workers at the end of their careers.
We urged cities not to panic and make wholesale changes in their retirement plans when the economy went into recession, the stock market dropped and city contributions increased. We warned plan sponsors that public employment demands unique qualities from employees whose careers often carry the risk of death or disability, and that dismantling benefits that always have been defined as compensatory would have a painful impact on recruitment and retention.
Cities across Florida are now acknowledging the severity of that problem. Palm Beach has lost 56 firefighter-paramedics since 2012; more than 60 percent of all town employees have fewer than three years’ experience. In local press coverage, Sebring’s Fire Chief said relatively low salaries and the switch from a traditional pension system to a 401(k)-type retirement account have made it increasingly difficult to fill positions, as well as to retain firefighters. Longboat Key’s Fire Chief has said the salary and pension issue needs to be addressed to stay competitive and to hire top-tier firefighters. The list goes on.
Now a growing mountain of evidence shows the most commonly chosen retirement alternative – the 401(k) – is not only less efficient, but also less capable of delivering adequate savings for retirees.
A recent Economic Policy Institute report lays bare the frightening truth behind the loss of traditional retirement benefits. “The State of American Retirement: How 401(k)s have failed most American workers” is an unvarnished look at how the disappearance of traditional pensions is hurting American workers who cannot survive on their 401(k) accounts alone. The report makes clear the pending crisis, “While it is normal for higher-income families to have more savings, the fact that most families in the bottom half of income distribution have no retirement account savings at all is a serious policy failure.”
Nationwide, the shift from guaranteed pensions to 401(k) accounts leaves large groups of workers entirely out in the cold. PEW Trust reports 49% of American workers have no access to an employer sponsored retirement plan. National Institute on Retirement Savings research shows 62% of working households aged 55-64 have retirement savings less than one times their annual income. The Center for Retirement Research at Boston College released a 2016 study that reveals a $7 trillion drop in retirement savings, from 1975-2012.
We applaud those who have worked to strengthen their local pension funds, and we caution taxpayers not to accept as Gospel political bluster designed to frighten cities into closing their local retirement plans in favor of “promised” short-term gains.
Retirement security is a pipe dream for too many working Americans. We urge city and state governments to seek ways to facilitate more robust savings systems, in both the public and private sectors, because the cost of funding a secure retirement plan is certainly cheaper than the alternative.
The FPPTA is a non-profit education organization. Established in 1984, the FPPTA offers a nationally recognized certification and continuing education program for pension plan fiduciaries. More than 265 of Florida’s 492 municipal pension boards are FPPTA members.