Speech by Karen Friedman at a meeting of the National Education Association Retirees' Organization
Hello NEA retirees! It’s great to be here! Thanks for inviting me this morning to speak. I'm Karen Friedman, the executive vice president and policy director of the Pension Rights Center. We are a national consumer organization that has been around since 1976, working to promote and improve retirement security for American workers and their families.
We work to close gaps in the law which have prevented folks from getting pensions; we provide hands-on legal assistance to individuals to help them enforce their rights; and we work toward visionary polices for the future.
We just celebrated our 40th anniversary and I have to say that the Center's work is needed now more than ever as the attacks on private and public pensions, Social Security and other social programs grow across the country.
I'm going to talk today about how we're going to fight back to protect pensions for today’s and tomorrow's retirees, especially fighting for collective, pooled arrangements that have built a middle-class in this country.
To that end, I'll be discussing the retirement crisis facing this country, the need to protect the good plans that people have, and the need to work for a new movement for retirement security for all.
Let's start with the big picture:
Only 50 percent of the private workforce has pensions or retirement savings to supplement Social Security. More and more companies have abandoned or cut back good guaranteed defined benefit plans plans in favor of 401(k)s. But, 401(k)s just aren't cutting it for most Americans. Half of all households have only $59,000 accumulated in their accounts. And those closest to retirement have only about $103,000, which is not enough to make it through retirement. Recently, the creators of the 401(k) said publicly that they regretted the trend of 401(k)s and never intended for them to replace defined benefit plans.
And increasingly there are attacks on public sector plans – the plans, which you all know, are as American as apple pie and that have ensured that teachers and other public-sector employees – who have accepted lower wages while serving the public good – can later live with a modicum of dignity in retirement.
Because of all these factors, the country faces a huge and growing Retirement Income Deficit of $7.7 trillion.
That’s the gap between what people have saved as of today and what they would need to have saved today to meet their basic retirement needs.
This Retirement Income Deficit would be a lot higher if private, state, and local pensions are cut and if Social Security is decreased.
National opinion polls reflect America's anxiety. A Gallup poll shows that Americans are more worried about not having enough money for retirement than any other economic issue – including paying for health care, their mortgage, or their kids’ education.
So given all this, policymakers should be making the protection of pensions and retirement security a national priority, right?
But sadly, we at the Pension Rights Center are seeing an assault on retirees in ways that we have never seen in all our years of existence.
Assault #1: Social Security
Social Security is the most successful social insurance program in the country. It is the bedrock of security for American families. Nearly two-thirds of retired Americans receive half of their income from Social Security, and it's the only source of income for one in five older Americans (Social Security now averages about $16,000 annually for the typical retiree. It is much less for women and lower-wage workers).
Yet, despite the importance of this program, some ideologues in Congress have tried to undercut the program for years. But now we see that this THREAT is all too real.
Social Security, Medicare and Medicaid are in greater danger than any other time in their histories. The majority in Congress has said that they will take up Medicare and Medicaid in 2017, but definitely they are out to get SS too. They just seem to be more aware of its political dangers around this program.
As you may remember, Donald Trump promised during his campaign that he wouldn't cut Social Security. But now his party is backtracking, saving now that they’ll "save" SS by not cutting benefits of those close to retirement.
What most people don't hear is that, despite the reports of doom and gloom, Social Security can pay 100 percent of benefits for the next 17 years – without a single change. There are many practical ways of fixing Social Security.
We need to fight back and save Social Security for all generations.
Assault #2: State and municipal plans.
As you know, while state and city workers have given up wages to get good pensions – and generally make lower wages than their counterparts in the private sector – we keep hearing that public pensions of all kinds are bankrupting the states.
You've heard it in Hawaii, you’ve heard in New Jersey, you’ve heard it in Illinois and recently in Dallas.
And these fights continue in state capitols and municipalities across the country, despite the fact that most state pension plans are well funded and, when they're not, it's usually because the legislators didn't fund the plans in the first place. Like in Illinois, where the legislators haven’t been funding the plan for generations (although the municipal plan in that state is one of the best funded in the nation).
And because the Great Recession hammered all pension plans.
But the fortunes of most public plans are rising. According to the Center for Retirement Research at Boston College, the average pension was funded at 74 percent in 2014 and will achieve sustainable funding levels by 2018.
Some of this is by improving contributions; some by changing actuarial assumptions; and some by making reforms, which generally are negotiated with unions.
The fact that has been starkly clear is that changing to a defined contribution plan or 401(k) plan is not the way to save money. According to NIRS, switching to a defined contribution plan can, in fact, make funding shortfalls worse and lessen retirement security.
Similar to Illinois, West Virginia had underfunded its teacher pension plan for years and then they decided to shut it down completely. But guess what? They found out that they couldn’t fill the shortfall in the plan and that older teachers couldn’t retire with even close to adequate income.
Cutting its losses, West Virginia reopened its defined benefit plan after a study found that providing equivalent benefits in the defined benefit plan saved money.
This is an important story that needs to be told again and again.
Also, public pensions are an important and ongoing source of economic stimulus to every state, city, and town across America. According to one study by the National Institute on Retirement Security, the system of traditional defined benefit pension plans distributes $140 billion annually and adds $200 billion in economic stimulus to the nation each year.
The good news for teachers still working is that while, as I understand it, some provisions have been changed for new hires since the financial crash in 2008, a newly-hired teacher can join a defined benefit pension plan in 49 out of 50 states. One state, Kansas, the DB plan is a cash balance plan. In all others they are still traditional defined benefit plans.
Alaska is the only state without a DB and Alaska teachers don’t participate in Social Security either. Some states offer a “choice:” between DB and DC – or DC and a combo DB/DC plan. But if you want a good DB, employees are good in 49 states.
And while some states and cities have enacted cuts, most states have protections against cutting retirees’ benefits, and when such cuts occur – like in Detroit’s bankruptcy many years back – these were challenged in the courts. And in Detroit’s case as you may remember, the cuts because of strong push-back, were minimal.
We need to fight back against these cuts in state and city plans.
Assault #3: Attacks on Private Plans
And finally attacks are also happening in private plans.
As I said earlier, over the past decade, more and more companies have found ways of breaking promises to workers and retirees, by dropping good guaranteed pension plans, cutting benefits, freezing plans, and replacing them with 401(k)s.
As bad as these trends have been, at least retirees and workers in company and union pension plans could depend on one thing: while companies could change the plan for the future, benefits earned could not be taken away.
We were appalled when, at the tail-end of 2014, Congress passed a law called the Multiemployer Pension Reform Act that allows the already-earned pensions of retirees to be cut in certain severely underfunded multiemployer plans, which, as you know, are pensions where a union negotiates a plan with many employers. The NEA retirees are in a multiemployer plan but I assume it’s well-funded.
MPRA guts the fundamental provisions of ERISA, the federal private pension law.
For 40 years, ERISA had the strongest protections for retirees, clearly protecting retiree pensions by preventing them from being cut in a multiemployer plan unless a plan runs out of money.
However, MPRA reverses ERISA’s protections and allows trustees of many underfunded multiemployer plans to slash retiree benefits 10-20 years before a plan runs out of money. The idea was to allow trustees to balance the books of these plans on the backs of retirees. And this was dreadfully unfair.
The Central States Pension Fund, which covers truck drivers, warehouse workers, bakery workers and others was the first plan to use MPRA when it applied to the Treasury Department to get approval for a plan to cut retirees’ benefits from 40 to 60 percent. Can you imagine?
The Pension Rights Center organized with thousands of retirees across the country as well as with AARP, the Teamsters Union, the Machinists and others to try to stop these cuts. We and retirees across the country lobbied and organized rallies and submitted comments to the Treasury Department arguing that the Central States application didn’t meet the requirements of the law.
And we shocked the Central States fund and the lobbyists who wrote the bill – because the Treasury agreed with us and the retirees and they shot down the application.
That was great news, but it’s only temporary.
There are eight other plans other than Central States that have applied to Treasury to cut their retirees benefits. Four others have been rejected, two withdrawn and are two pending, including the New York State Teamsters.
But in mid-December, the Treasury Department for the first time APPROVED an application for Iron Workers Local 17, leading to 320 retirees facing cuts of 30 to 60 percent.
In its application, Iron Workers Local 17 pitted retirees against workers by structuring its cuts so that workers’ pensions received only small or no cuts while certain retirees received steep cuts. So when there was a vote on the cuts, many of the folks voted in favor of cuts, likely because they weren’t affected.
But, even if they didn’t vote in favor of the cuts, the vote is flawed and what some may call rigged. Under MPRA, people who do not vote are counted as yes votes – and this tips the scale for the plan in most instances.
We are now afraid that the Iron Workers Local 17 will serve as a model for other plans to move forward. We heard from musicians from the American Federation of Musicians that they have received a notice that their plan may soon apply for benefit cuts.
Overturning MPRA and finding a better solution is the Center’s top priority. We hope that the NEA and the NEA retirees will join us in this fight. We are bringing together stakeholders from all sides of the issue to come up with a better proposal and one that doesn’t sacrifice retirees to ostensibly save pension plans.
If these cuts are able to proceed, all plans will be affected because it would set a terrible precedent where legislators will say “Oh, they let it happen in multiemployer plans. Let’s make even worse cuts in state plans, in city plans and why not in Social Security?”
Do we as a country value promises made to people, especially our elderly and our most vulnerable? Or have we become a country that obliterates promises and has no regard for workers and retirees? We must fight together to uphold promises to retirees – and to working Americans. We are all in this together.
I want to stress that we cannot let this become a fight between the young and the old, which these battles in pensions are increasingly becoming. Pensions should not be cut to pay for education. And retirees and workers should not be penalized because plans become underfunded.
We live in a civilized society where we need to take care of the young and the old. We need to fund education and we need to keep pension plans that are working. It shouldn't be us or them.
Ultimately we need to have a larger movement for Retirement Security for All – for today's and future retirees.
Here are some principles for the future:
- Protect the promises made to people in private plans and in state and municipal pension plans.
- Protect and strengthen Social Security
- Support us as we work to repeal the Multiemployer Pension Reform Act of 2014 and support legislation that should be introduced by June to repeal the law.
- For those who are not covered by a pension plan, create a new system of universal, secure, and adequate pension plans on top of Social Security so that everyone has secure income.
On that note, I wanted to spend only a minute or two talking about new state-facilitated plans that are being considered by 28 states. These plans give private-sector workers without a plan the ability to be auto-enrolled in a state-sponsored Automatic IRA. These plans, called “Secure Choice” savings accounts are being piloted in California, Connecticut, Oregon and Illinois. The plans are basic and are funds are not co-mingled with state plans, but they are also much less adequate. The Department of Labor gave its blessing on these plans in a regulation last year, but the House just voted to kill this regulation. And the Senate may vote next week.
While this is a small program, it is important to know about it and I can take questions on this and other topics.
Thanks for giving me the opportunity to speak today.
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