Public Pensions: Taking the Long View

Center President and CEO Elizabeth Kellar told attendees at the Texas County and District Retirement System that it is important to take a long view when it comes to retirement plans. Speaking in Austin, Texas, earlier this month, she reminded attendees that small changes now can pay big dividends later.

“Fiscal discipline, patience, and an increase in financial contributions are likely to be needed,” she said. “But contrary to public perception, governments have been among the most responsible employers. In fact, both public and private plans were 80-90 percent funded before the market downturn in 2008, according to research that we undertook with the Center for Retirement Research at Boston College.

“Unfortunately, both public and private plans have experienced similar declines in funding levels, since both invest about 70 percent of their assets in equities. Funding levels in public plans are now estimated at 65 percent, according to the National Association of State Retirement Administrators.”

Kellar told the audience that one impact of the economic downturn has been to remind everyone of the importance of saving for retirement. Governments can play an important role in helping their employees build their retirement security.

“Government employers have unique stewardship responsibilities and they take them seriously,” she said. “They can help their employees save more for retirement by doing such things as setting up auto-enrollment systems for supplemental defined contribution plans.”

But Kellar warned that governments need to think beyond the current economic crisis.

“We can’t forget that we have a demographic tsunami of aging workers that will hit the public sector harder than the private sector. Those who work in the public sector are older and more educated than those who work in the private sector. Even with the current hiring freezes, furloughs, and layoffs, many local governments must brace for a massive recruitment challenge in the next five years. Having good retirement and health care benefits has been important in helping us recruit and retain the talent we need.”