Since the beginning of the economic downturn we’ve seen a lot of stories in the news about the decline in the funding status of pension plans. Given that pension plans are heavily invested in the stock market, real estate and other assets that have lost significant value in the economic downturn, it would follow suit that the funding levels in these plans have also decreased.
A recent article in the Boston Globe focuses on a small number of retirees from the Massachusetts State Retirement System, and essentially blames the retirees for the retirement fund’s financial troubles. Specifically, the article cites the fact that 106 of the more than 55,000 participants in the system receive pensions worth more than $100,000 annually. The article begins by asserting that these large pensions – for a mere 106 retirees – contribute to the struggling system’s financial stress.
Hidden in the article is the detail that the average annual pension for a retired Massachusetts state employee is $24,000. Coupled with the fact that state employees do not participate in Social Security, this means that their state pension may be the only income Massachusetts state employees receive at retirement.
Also, the article fails to mention that the Massachusetts state plan requires workers to work for the state for 10 years before they become eligible to receive any pension at all. If a worker leaves employment before completing 10 years of work, she will have not only forfeited pension benefits, but she will have a gaping hole in her Social Security record that could reduce her future benefit from the Social Security program.
Another point missing from the article is the fact that traditional pension plans are invested for the long-term and they are specifically designed to survive the losses incurred in economic downturns. See In it for the Long Haul: The Investment Behavior of Public Pensions a report published by the National Institute on Retirement Security. The outrage over the Massachusetts State retirement System shouldn’t be directed at the small handful of highly-paid retirees who have devoted their careers to the state and believed in a promise that their hard work will provide them with a secure retirement – their outrage should be over the fact that so many other state employees receive little or nothing after years of service to their state, leaving them with an incredibly vulnerable and uncertain retirement.