Regarding the PERA Reform bill and the defined contribution option for future members, I have a simple but very important question: Will a shift from PERA's defined benefit to a 401k-style defined contribution option also include commensurate Social Security? I ask because it has to, or it is a non-starter for many constituents who would support it.
The financial reality for every American who has a defined contribution plan like a 401k or IRA is that they also receive Social Security or a defined benefit. It may not be much, and it may not be the primary income of retirement (though for many it is), but it is there as a bit of security. Asking PERA members to step away from any defined benefit and rely solely on the income from a single 401k-style plan is asking them to do what no other worker in the United States does, or risks. The basic concept of Social Security is the small modicum of security in case of an economic downtown, or perhaps risky and ill-advised advice from financial consultants.
The defined-contribution option is very appealing, especially for younger workers. specifically because of the portability option. Currently, members can be stuck in positions for 20, 25, and 30 years in order to "get their retirement." The idea of workers being able to shift careers and locations when they desire is actually quite appealing for the education profession. But there must be some degree of security.
As far as I can see, your current proposal contains none. I would like to take an active position on this bill, but I can't do so without some clarification, and I would love to get some more information from you.
2 comments:
I take it Colorado is having questions on the long term stability of pensions, i.e. defined benefit plans. We've had a similar issue over the last few years, and ten year ago there were major changes, such as moving the years for a pension from 20 to 25, and for the people hired after 2004, you draw your pension at age 55, not immediatley.
A recent mayorial candiate was very open about switching our pensions for future hires to a defined contribution plan. But the local media (very much pushing this man) never asked one question. Once you put new hires on a defined contribution plan, they must pay into Social Security, and the city must match it (no way to get around it). So instead of dealing with two major funding issues, we have three.
The long-term stability issue is the primary concern for some. For others, it's an ideological belief that no one should have retirement system, and that it's every man for himself in saving for the elderly years.
I truly support changes to PERA in terms of retirement age requirements and timing for withdrawals. Previous policies were irresponsible. But, as I noted, the move to only an individual 401k with no security and defined benefit is a risk that no current worker faces, and which we sought to avoid after the Great Depression.
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