Multiemployer Pension Plans In Crisis: Troubled Plans Need Public Resources To Survive

There is an emerging financial crisis among multiemployer pension plans in America. These plans are a subset of private sector defined benefit pensions covering 10 million workers and retirees. Most critical are the projected bankruptcies of the Teamsters Central States and the United Mineworkers of America plans, making front page news for the last several months. These plans and many others were undermined by two financial market crashes between 2000 and 2009, corporate bankruptcies, de-regulation, and over-regulation. It will now take more than hope to fix them.Read More

Putting The Pension Back Into Retirement

Defined contribution plans – often known as 401k plans – have become the mainstay of US company pensions, yet their main function has been to get employees to save and invest during their work years. These plans haven’t been successful at delivering lifetime income benefits, as a rule: fewer than one-fifth of all such plans today help workers convert their plan assets into retirement paychecks.Read More

A Proposal For Allowing State Pension Buyouts

Many U.S. state and local employee pensions are facing dire problems as massive plan liabilities come due, threatening to drain government coffers. As Robert Novy-Marx and Joshua Rauh wrote in the Journal of Finance, 21 state pensions held less than 40 percent of the assets needed to pay benefits. Their estimate of the aggregate “funding gap” faced by states was roughly $2.5 trillion in 2009. Since then, the story has not improved, and it has likely worsened. Puerto Rico recently joined Detroit as a case study of fiscal and public pension mismanagement and failure, and the Puerto Rican pension is essentially without any assets.Read More

What The U.S. Can Learn From Chile’s Retirement System

Chile provides a safety net for those who fall into poverty in old age, but it’s still an imperfect pension system that needs work.

Pay-as-you-go (PAYG) retirement programs in the U.S. and many European countries are struggling to remain solvent in the face of an aging population, fewer workers, and a shortfall in private savings. A different approach would strengthen individual savings accounts by requiring workers to contribute out of pre-tax income, combined with a redistributive means-tested safety net for those who fall into poverty in old age.Read More

Chile’s Fabled Retirement System: Why Fix It?

Since its launch 35 years ago, Chile’s retirement system has been hailed as “best in class” by pension experts near and far. The country’s fabled individual and privately-managed accounts include around 10 million affiliates, hold $160 billion in investments, and pay retirement benefits to over a million retirees. So why did President Michelle Bachelet establish a Pension Reform Commission that just delivered to her 58 specific reforms and three comprehensive proposals to overhaul remodel Chile’s retirement system?Read More

Unfunded Pension Debts of U.S. States Still Exceed $3 Trillion

It’s well-known that there’s a huge financial hole in state-sponsored retirement plans for public employees, a hole that states will eventually have to fill with tax increases and spending cuts.

There is, however, still considerable debate as to the size of this government debt owed to public employees. In July 2015, the Pew Charitable Trusts released their latest issue brief, reporting that as of 2013, the nation’s state-run retirement systems had a $968 billion funding gap GPS +1.75%, not far from the “Trillion Dollar Gap” they reported in 2010.Read More

Target Date Funds: The Good, the Bad, and the Unknown

Target Date Funds, which automatically diversify, adjust and rebalance retirement saving allocations over very long periods of time, are among the most successful individual investing products of the past decade. Initially introduced in 1994, target date funds (TDFs) really took off after the U.S. Pension Protection Act of 2006 allowed defined contribution (DC) pension plans to use them as a default option for plan participants. Assets in TDFs rose from a total of $100 billion in assets in 2005 to over $700 billion in 2015, and more than 60% of new DC pension contributions are now flowing into these funds. At least 36 mutual fund companies offer TDFs to pension plans, and a growing part of the pension consulting business consists of helping pension plan sponsors to “customize” their TDFs.Read More

A New Approach To Timing Pension Payouts

US federal law requires retirees to annually withdraw a minimum amount from their retirement accounts after the age of 70 ½. [1] This is driven by a tax rationale: since pension contributions are generally tax-deferred, Required Minimum Distribution (RMD) rules require that taxes should be paid on pension benefits during old age. Yet a criticism has been levied at RMD rules, namely that they may prejudice good retirement policy. To the extent that some households are required to draw down their pension wealth too soon, this increases the risk that they will outlive their resources.Read More