Speech by Karen Friedman to the Texas Municipal Retirement System (November 19, 2013)

Speech by Karen Friedman to the Texas Municipal Retirement System (November 19, 2013)


On November 19, 2013, PRC’s Karen Friedman delivered the keynote speech at the Texas Municipal Retirement System’s annual meeting in Austin, TX. Below are her remarks.


Hello, I’m Karen Friedman, the Executive Vice President and Policy Director of the Pension Rights Center.

Before I begin today, I wanted to tell you that, in anticipation of this speech, I went to South Congress Avenue in Austin and bought myself a pair of cowboy boots that I want to show off today.  Now I feel like a true Texan.

As you heard, we’re a consumer organization that has been around since 1976, working to promote and improve retirement security for American workers and their families. We do that by closing gaps in the law which have prevented folks from getting pensions, providing hands-on legal assistance to individuals to help them enforce their rights, and working toward visionary polices for the future.

It’s fabulous to be speaking to so many of you today who either are directly involved in running the Texas Municipal Retirement System or who are city and state officials, organizational leaders, and others who care about pensions.

Just so you know, before coming here, I was told by many experts in Washington that TMRS is one of the best-funded and best run plans in the country.

And you should be proud.

Because you all know first-hand the importance of providing a good pension plan both for your own retirement security as well as to ensure that tens of thousands of firefighters, police officers, utility workers, sanitation workers, and other city workers can count on adequate and secure retirement income after devoting themselves to a lifetime career of important government work.

But sadly millions of people in this country don’t have pension plans or retirement savings plans to supplement Social Security, and they are in a much more precarious position.

I’m going to be talking today about the retirement income crisis facing this country and the need for us all to work together to combat this crisis to ensure Retirement Security for All.

I’m going to talk about why retirement security is not only good for older Americans but why it’s good for every city, every state, the country at large, and the economy.

And I’m going to talk about how we can stop attacks on municipal and state pension plans by working toward solutions to get every working American covered by a decent retirement plan, particularly focusing on how to develop plans that are good for younger workers too.

After my comments, I want to make sure that we have a lively Q&A. If we combine our creativity, visionary thinking, and good old-fashioned Texas toughness, we can solve the retirement problem for future generations of retirees.

So, given that Austin is the musical capital of the world, and as a way of getting into this huge topic today, I thought I’d get some inspiration from two artists who both hail from Texas (and who matured in their careers  in the lovely city of Austin): Janice Joplin and Willie Nelson. I realized that a few of their songs could be rewritten to educate people on retirement security.

I thought you should be the first ones to hear these new renditions.

First, if Janice Joplin had been writing about retirement security, she may have written:  

Lord, won’t you buy me a new pension plan
My 401(k) savings fit in a tin can
I need me some money so I can survive
Or I’ll be living in my old Porsche when I’m 65

Or, if Willie Nelson were giving this speech today, he might write: 

On the road again
Lost my pension, I’m on the road again
I lost my house now I’m living with my friends
Got no savings so I’m on the road again

OK, sorry that you had to put up with my lousy voice. I promise I will not be singing the rest of my speech. Well, of course, unless you want me to!

But the truth is, even without singing, we have to face the music in this country and the truth is, unless we all work together, all too many people are going to end up without enough money in retirement.

While the majority of government workers get a good pension, that isn’t true of most private-sector workers.

  • Fifty percent of the private workforce is not covered by any kind of pension or retirement savings plan. That figure has been pretty consistent for the past 50 years.
  • Companies in the private sector are freezing, terminating, and otherwise cutting back their defined benefit plans, replacing these secure, guaranteed plans with 401(k)-type plans. Back in 1980, one out of two workers participated in defined benefit plans.  Now that figure is closer to one in five.
  • And 401(k) plans – viewed a decade ago as the Holy Grail of retirement – have failed millions of workers. Even before the stock market crash, half of all households with 401(k) plans and other retirement savings plans had less than $45,000 in their accounts. For those approaching retirement, the median account balance was just about $100,000 – not much to retire on.
  • And the truth is, those with good old-fashioned pension plans – defined benefit plans and cash balance variations – are both good for the economy and good for people. Those who have pensions have twice the income of retirees only receiving Social Security.

But to get more people good pensions, we have a lot of hard work to do. Consider these facts:

  • According to the Center for Retirement Research at Boston College, 53 percent of households are “at risk” of not having enough to maintain their living standards in retirement. And that number is expected to rise in coming years.
  • If you translate the Center for Retirement Research’s Risk Index a different way, you’ll see that we have a Retirement Income Deficit of a whopping $6.6 trillion — which is the gap between what people have saved as of today and what they would need to have currently saved to meet their basic retirement needs.
    • To arrive at this $6.6 trillion number, the Center for Retirement Research looked at households in their peak earning years (32-64), assumed that people would continue to earn pensions and contribute to 401(k)s at current rates and factored in the value of home equity (which is optimistic).
  • The Retirement Income Deficit would be a lot higher if state and local pensions are cut and if Social Security is decreased.

So it’s worth keeping in mind that while policymakers are focused on the federal budget deficit, they need to also pay attention to the growing Retirement Income Deficit facing this country.

But it’s too easy sometimes to just look at numbers and statistics and forget about the folks behind the numbers. That’s why the Pension Rights Center has a story bank on our website to document how the Retirement Income Deficit affects people personally.

We have heard from folks like Shareen Miller, a personal health care assistant in Virginia, who is making $12 an hour without health care, pensions, or vacation.  She and her husband have about $100,000 saved in his 401(k) account, and she worries that the entire balance could be wiped out by one health crisis.

Or Karen O’Quinn, who got laid off from corporate America, her husband lost his job, and they lost their house. They don’t have a dime saved for retirement, and she laments, “I don’t know how I’m going to make it.”

Or David Muse, a sound technician who puts it bluntly, “I will be forced to work until I either fall apart, my health totally crumbles, or I die. For me there is no retirement.”

And national opinion polls reflect America’s mounting anxiety about retirement:

  • A Gallup poll shows that more Americans are worried about not having enough money for retirement than they are about paying for health care, paying a mortgage, or paying for their kid’s education.
  • An Associated Press/National Opinion Research Center poll released just last month found that older Americans (50+) are not simply delaying their retirement plans; they’re facing the possibility that they won’t be able to retire at all. 82 percent of those who haven’t retired yet said that they are likely to continue working, while 15 percent of those who had retired are either working again or trying to get back into the workforce.
  • A new study by HelloWallet shows that 60 percent of households with 401(k) plans added more debt to their balance sheet than they contributed to their savings plans.
  • And a poll by Allianz Life Insurance showed that baby boomers fear outliving their money in retirement more than death!

So given all this, policymakers should be making 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 our 37 years of existence. 

The first assault is on Social Security, the most successful social insurance program in the country and the bedrock of security for American families. The average Social Security benefit is only about $15,000; less for women and those with lower income. Nearly two-thirds of retired Americans receive one-half of their income from Social Security and it’s the only source of income for one in five older Americans. Without Social Security, most seniors would live in poverty – about the same as before Social Security was created.

However, from the day Social Security was created some have opposed it, and despite its overwhelming success, some have tried to undermine the program by privatizing it. The stock market crash put an end to the talk of privatization for a while, but new proposals to undermine Social Security keep popping up. And some policymakers consider cutting Social Security a reasonable way to balance the budget – despite the fact that Social Security does not contribute one cent to the deficit.

The most recent proposal is to change the way COLAs are calculated, using the “chained CPI.”  The Social Security COLA is designed to help seniors maintain their purchasing power over a retirement that can last for decades. The current formula already falls short because seniors tend to purchase more health care services than younger people, and health care costs typically rise faster than general inflation. Using the chained CPI would cut COLAs, forcing seniors to fall even further behind. To add insult to injury, those that would be hit the hardest from a switch to the chained CPI are the oldest and poorest among us.

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 three decades without a single change. And there are ways of putting Social Security onto a sound fiscal footing far into the future without cuts. 

Medicare is this nation’s only universal health insurance program. Although it has been a lifeline to millions of seniors and the disabled, Medicare’s costs have grown because health care costs keep going up. But instead of dealing with these rising health care costs, the response has been to try to save money by shifting more and more costs to beneficiaries and providers, making it harder for those on fixed incomes to keep up. 

While state 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 are bankrupting the states.

The reality, however, is quite different.

According to economist Alicia Munnell, who wrote the book, State and Local Pensions, What Now?, the vast majority of state and local pension plans are not in crisis and are relatively funded. In fact, we understand they are about as well-funded as most corporate plans. We have to recognize that there are a handful of  states where there are real problems — such as New Jersey, Illinois, and Kentucky — but these problems were caused, according to Munnell, by legislators behaving badly by not funding their plans or using thoroughly unrealistic assumptions of how much is owed and how much to contribute.

As you all know,  despite myths to the contrary, the average pension for public-sector employees – teachers, firefighters, police officers – amounts to somewhere between $20,000 to  $30,000 year, and, in some states, public sector workers don’t get Social Security, making their pension their only reliable income in retirement. Yet policymakers and too frequently the media choose to focus on outliers who receive overly generous benefits and hold them up as representative of all public employees, scapegoating an entire system. In fact, pension contributions, according to the Census Bureau, are a small part of state and local budgets.

Public pensions are an important and ongoing source of economic stimulus to every state, city, and town across America. According to the National Institute on Retirement Security, the traditional system distributes $140 billion annually and adds $200 billion in economic stimulus to the nation each year.

Which of course brings me to Detroit and the assault on municipal plans.

I’m sure most of you have heard of the effort by the Emergency Manager of Detroit to declare bankruptcy in order to shed much of its pension liability through the bankruptcy process. What caused Detroit’s downward spiral is complex, caused by a range of factors – the decline of this city’s manufacturing industry, mismanagement by city officials, bad bond deals, and surburban flight, to name a few —  but one thing is clear: Detroit’s downfall is NOT the fault  of the retirees who built and worked for the city, through thick and thin.

These hard-working individuals contributed to the plan, gave up wages so their employer could contribute to the plan and earned a pension. This is not some kind of giveaway to greedy retirees.

Ora Mae Mott, 81, of Detroit worked for the city’s Finance Department for 30 years, retiring in 1991. She thought when she retired that “everything would be swell,” (according to the Detroit Free Press) but found out that life had other plans for her.

“It just so happened that my husband died seven years ago …and then this came up, and I don’t know if I’m going to make it. But I’ll do the best I can,” she said. “But I think it’s wrong. I don’t know how they can do this to me.”

Taking away Ora Mae’s pension is a violation of her rights, and a violation of the Michigan state constitution, which states that retirees’ pension benefits cannot be cut back. Seventy-five percent of Detroit residents say they DON’T want pensions cut to address the city’s problems.

There needs to be other ways of addressing these problem. If Detroit succeeds in its bankruptcy bid, which is being challenged in court, it will not only affect the 23,500 retirees who could see their hard-earned pension slashed but also set a dangerous precedent. We might see more earned benefits slashed as other cities follow Detroit’s lead.

In fact, the mayors of four California cities have filed papers with the state to place an initiative on next year’s ballot that would amend the state’s constitution to allow local governments to cut back pension benefits for current and future employees. The proposal needs 800,000 signatures to get on the ballot and is being. If it is successful, it would break promises made to millions of teachers, firefighters, policemen, and others who lay their lives on the line every day to keep our country safe and prosperous.

But there’s also good news to stop cut-backs. Cincinnati voters recently soundly defeated a controversial ballot initiative that would have eliminated the city’s pension plan and replaced it with a 401(k)-style retirement system. Just over 20 percent of the people wanted to switch to the inferior plan and more than 78 percent voted against it.

This shows that, when asked, people know the importance of pensions.

There needs to be an open and honest discussion about what caused cities’ and states’ problems – including examining the role of financial institutions in causing the housing crash, which precipitated the huge economic downturn from which the whole country is still recovering. Policymakers should not use scare tactics to cast teachers, firefighters, and police as the ones responsible for the fiscal problems of states and cities. This is unfair and it is creating intergenerational warfare, which I will address later in my speech.

And finally there are attacks on private plans.

Attacks are also happening in private plans. The most troubling to us are in so-called “deeply troubled” multiemployer plans. Congress is expected to introduce legislation in coming months that would, for the first time, allow pension plan trustees to slash the already-earned benefits of retirees. This proposal is being billed as “shared sacrifice,” but it is a radical departure from current private pension law, which holds that pensioners deserve the strongest protections.

ERISA’s anti-cutback rule is sacred. It states that once retirees start receiving a pension, it cannot be taken away (unless the plan becomes insolvent and then federal guarantees kick in). We fear that, if such cuts are allowed, it will bleed into all private pension plans and bolster attacks on state and local pensions.

From our perspective, the attacks on Social Security, Medicare, public plans, and private plans are part of a wholesale assault on the idea of collective social institutions and shared risk. Those who ultimately wish to privatize Social Security and voucherize Medicare also want to turn guaranteed pension plans into do-yourself savings accounts – with the risks and responsibilities shouldered entirely by individuals. This is just one more step in tearing apart the fabric of our social institutions in favor of a so-called “ownership society.”

The Pension Rights Center believes there has to be a counterweight to the do-it-yourself savings society, where all the risks and responsibilities have been shifted onto individuals. We have been part of a national movement to push for retirement security for all, promoting a vision of shared responsibility to ensure that all working people, whether in government or in the private sector, can retire with decency.

The Center is committed to pushing the current retirement system as far as it will go. In that regard, we have worked to protect 401(k)s by pushing for transparency in fee disclosure and, most recently, by urging that those who give investment advice must work solely in the interests of retirement plan participants.

However, simply plugging holes in today’s patchwork system is not going to solve the growing retirement crisis in this country.

We have to be practical in protecting today’s workers and yet visionary in developing better solutions for the future — particularly for young people.

That’s why we started Retirement USA with a variety of national organizations to foster a national discussion on the need to develop a secure and adequate retirement system to supplement Social Security.

After studying systems in other countries and proposals and programs here in the United States, Retirement USA developed 12 principles for a new retirement system. These principles borrow from the best parts of defined benefit pension plans and 401(k) savings plans, and include some additional features.

  1. Universal Coverage. A new retirement system that supplements Social Security should include all workers, unless they already are in plans that provide equally secure and adequate benefits.
  2. Security. Workers should be able to count on a steady lifetime stream of retirement income to supplement Social Security.
  3. Adequacy. The average worker should have sufficient income, together with Social Security, to maintain a reasonable standard of living in retirement.

I’ll highlight a few of the other key principles, and you’ll see the whole list on the Powerpoints.

  • Both employers and employees should contribute, and the government should subsidize the contributions of lower‐income workers.
  • Pooled, professionally managed assets are key to a secure retirement.
  • There should be no leakage, and benefits should be paid as a lifetime annuities.

These are not unreachable ideals, and we have looked to many plans and proposals, both here and abroad, in developing our principles and ideas for a new system.

For instance we looked at the TIAA portion of TIAA-CREF, the plan for academics and educators, which has employer contributions, uses pooled investments, and pays out benefits as guaranteed lifetime annuities.

The Netherlands has developed an interesting model in which employees’ savings are pooled in a collective defined contribution arrangement. Investment and life expectancy risks are shared among employees and retirees – rather than all of the risks being borne by each individual.

As I prepared to talk to you today, I realized that TMRS seems to meet all our principles. It occurs to me that your system should be publicized around the country and could be a model for a new national model to help cover uncovered employees.

TMRS has many of the elements of a blueprint that Senator Tom Harkin, the Chairman of the Health, Employment, Labor and Pensions Committee, has developed. Senator Harkin has developed a blueprint for universal retirement savings, because he recognizes that 50 percent of Americans have no pensions or savings to supplement Social Security, and he recognizes that there needs to be new solutions to address the Retirement Income Deficit.

To that end, his blueprint for USA Retirement Funds, outlined in a report he released last year, calls for employers and employees to contribute into independently-run funds, which are run by competing financial institutions or nonprofit associations (kind of like your multiple employer plans).

Like TMRS, the money would be pooled and professionally invested, and lifetime benefits would be paid at retirement. Like the Netherlands, investment and life-expectancy risks would be shared by employees and retirees. The blueprint requires all employers who do not offer an employer plan to participate in these funds. We have heard that Senator Harkin intends to introduce this proposal sometime next year.

Many of these concepts are gaining traction, not just among participant-oriented groups but among employers as well, because there is a growing consensus that we must both improve what exists – by preserving today’s DB plans and improving 401(k) plans – and also by developing new kinds of plans that better serve tomorrow’s retirees.

Retirement USA, which I talked about earlier, has evolved into a bigger coalition called Retirement Security for All, which is being run by AFSCME, SEIU, with partners including the PRC, AARP, the National Council of La Raza, and others.

The Retirement Security for All Campaign unites us around a common goal:  building a comprehensive and sustainable retirement system that guarantees economic security that we can all look forward to in later years and that will be there for our children and future generations.

While working to protect existing municipal, state and private plans, the coalition is also focusing on expanding coverage for uncovered workers – recognizing that everybody needs retirement security.

This cannot be us v. them. We must not give in to “pension envy” where some argue that it’s unfair for state or municipal workers to have good pensions while others don’t have any.

I think if you read the cartoon, this is the end result of pension envy and of a do-it-yourself only society.

Just about everyone ends up losing in one way or another. It turns a civilized society into a Darwinian fight-to-the-death society.

From our perspective, and that of the coalition, the pension envy logic is backwards. The truth is everybody should have good pensions. This cannot be a battle to take away what others have – as the cartoon shows – but instead we have to work towards solutions so that all Americans can retire with adequate income.

Many organizations are working to expand coverage – at least as a starting point – by working in the states to use the efficiencies of large public-sector retirement systems to administer new kinds of retirement savings plans and pension plans for private-sector workers.

In October 2012, California enacted the California Secure Choice Retirement Savings Trust Act, which has the potential to cover about 7 million private-sector workers in that state. The Act lays the groundwork for a state-administered retirement savings plan that is based on an automatic IRA but that has key features that meet our principles:

  • The money, rather than being individually invested, would be pooled and professionally invested.
  • The money is locked in until retirement and there is a potential for an annuity – and there is some discussion of partial annuities like TMRS does.
  • There is a modest guarantee.

All employers in California who don’t already offer a retirement plan would be required to offer this option to employees, who have to ability to opt out.

States would use their significant negotiating power and economies of scale to lower costs for employers. Because these plans would operate separately from the retirement system that covers state employees, they will not add to state budget deficits or add to liabilities of state pension systems. The law requires that a feasibility study be done before the plan is implemented.

Besides California, Massachusetts has passed a state-administered plan for employees of nonprofit organizations, and Connecticut, Minnesota, Rhode Island, New York, Oregon, and other states have expressed interest in exploring these approaches.

Just as the states led the way in developing new plans for health care expansion, these models for pension expansion could become the incubator for a comprehensive national solution. These proposals, while not perfect, can lead the country toward more comprehensive reform.

Some may say that in this time of fiscal constraint, we can’t afford to do comprehensive reform.

We believe that, even with budgetary constraints, we must find ways to develop better solutions – or individuals will fall off their personal fiscal cliffs in the future.

We must keep the pension plans and systems that work and build new approaches for future generations of retirees.

As I said before, pensions are not just good for individual retirees but they are good for the economy. According to NIRS, pensions save the nation $7.9 billion in public assistance, and help prevent 4.7 million households from falling into poverty or near poverty.

Also, when retirees do well, they can continue buying goods and services in the economy. In addition, according to Generations United, more than six million children live in what they call “grandfamilies,” households headed by grandparents and other relatives. As more and more families are still struggling to keep jobs, to keep their kids in school, grandparents often help out with expenses. Cutting pensions in some misguided approach to generational equity is short-sighted and bad for families.

I want to stress here that we cannot let this become a fight between the young and the old – which these battles in states and cities are increasingly becoming. It is not because of pensions that education costs are being cut. We live in a civilized society where we need to take care of the young and the old. And keeping promises to retirees is good for everybody.

Having a good pension plan is a bipartisan issue. It’s an issue that affects every worker, every retiree, every widow and every family, regardless of their political views.  And having a good pension is part of the American dream.

So, I’ll end where I started, with some more song lyrics, this time by another beloved Texan artist, Buddy Holly, with a rewrite of “That’ll be the Day.”

You know I’ve got a pension, can you guess why?
You know I’ve got a pension, I smile, not cry
Got a TMRS pension, that’s the reason why
I’ll have myself a pension till the day I die!

Thanks, everyone. It’s great to be here in Austin — and remember, “Retirement Security for All!”

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