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The Path to Improving Retirement Security in the U.S.
By: Lizzy Lees, Director of Communications, NCPERS
In honor of National Retirement Security Month, the Fall 2024 issue of PERSist features several articles that address the growing challenges Americans face in saving for a secure future and provide strategies to support the long-term sustainability of public pensions.
The U.S. retirement system recently earned a C+ grade and saw its ranking fall to number 29 out of 48 global pension systems in the Mercer CFA Institute Global Pension Index report, which analyzes both public and private sources of retirement funds.
According to Mercer, two major contributors to the dismal grade were the lack of access to workplace retirement plans and the many opportunities for “leakage” from retirement accounts—such as prematurely cashing out funds when changing jobs.
Since 2010, NCPERS has done extensive advocacy work to expand access to retirement plans through state-sponsored Secure Choice retirement savings programs. Today, there are 17 state-facilitated retirement programs with more than $1.64 billion in assets, bringing much-needed access for millions. However, it's clear there is more work to be done.
The Mercer report's authors noted that the transition from defined benefit (DB) plans to defined contribution (DC) plans has shifted the risk from employers to individuals. With variables like investment returns, rising inflation, increasing lifespans, and opaque plan fees, many workers lack a clear understanding of their benefits and are left woefully unprepared for retirement. Today, the median 401(k) balance is just $35,286.
According to the Congressional Research Service, only 15 percent of private sector workers have access to a DB plan compared to an impressive 86 percent of public sector workers. With fewer workers having access to pension, it comes as no surprise that 79 percent of Americans now recognize that there is a retirement crisis, up from 67 percent in 2020.
This only illustrates the importance of preserving and expanding access to pensions to enhance retirement security for all—a key tenet of NCPERS' mission. Our research shows that DB plans provide more than twice as much benefit as DC plans at the same cost to employer. Further, our latest study finds that the shift away from pensions to 401(k)-style plans has increased income inequality, which in turn has dampened the economy.
While the data should speak for itself, we know that only path to improving retirement security is through continued advocacy and ongoing education. Just as trustees and plan staff need to continue to educate themselves about the latest industry developments and best practices, it's imperative that we ensure policymakers have a strong understanding of the issues affecting each plan and the vital role that pensions play in recruiting and retaining public servants.
NCPERS engages with policymakers throughout the year on behalf of our members, but it is equally important for public pension stakeholders and allies to stay informed about the latest developments at both the state and federal level. NCPERS Legislative Conference & Policy Day provides the space for industry professionals to gain a comprehensive understanding of the policy landscape and learn how to advocate effectively on behalf of their funds. Then, on Policy Day, trustees and plan staff head to Capitol Hill to meet with their Congressional representatives to build relationships and help educate policymakers about the importance of preserving and protecting pensions.
Retirement security is a dire issue that affects us all. But only through continued and deliberate education, research, and engagement with policymakers will we find a solution.
Learn more about NCPERS Legislative Conference & Policy Day—held January 27-29—and register now to join us in Washington, DC.
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