Secure Your Future

Defined Benefit pension advantages are far-reaching

Mar 19, 2009 4:28 PM

An edition or two ago, we wrote about how satisfied Defined Benefit (DB) pensioners are with their retirement security. While 83 percent of Americans are concerned with their ability to retire, those with pensions are less insecure.

Why? Americans indicate that they value what pensions provide: regular monthly checks that will last throughout retirement and aren’t subject to the volatility of the financial markets. Especially at this uncertain economic time, they are very aware of the pitfalls or risks of their own retirement plans. About 9 in 10 believe all workers should have a pension so they can be self-sufficient in retirement, while 84 percent of Americans agree that government should make it easier for employers to offer traditional pensions. The value of pensions is not lost on Americans. But is it lost on some government officials and their conservative ideologue supporters?

A recent study by the National Institute on Retirement Security (NIRS) whose results were just released answers the naysayers.

The 2006 Census Bureau statistics show that 26 million Americans were covered by state and local pensions. Of these, there were 7.3 million retirees and other beneficiaries (dependents of deceased retirees) receiving regular pension payments equal to about $151.7 billion, for an average payment of a modest $20,867 per year. Their payments came from pension plans holding close to $3 trillion in assets. These assets were invested for the long term and were not used for trading accounts and quick return, in and out of the market investing. This is what is known as “patient capital,” which will lead the country out of the financial mess we are in.

The $151.7 billion in pensions paid to retired public employees and their beneficiaries supported:

• More than 2.5 million American jobs that paid more than $92 billion in total compensation.
• Over $358 billion in total economic output nationwide.
• Over $57 billion in federal, state and local tax revenue.

State and local pension expenditures have large multiplier effects:

• For each dollar paid out in pension benefits, $2.36 in total economic output was supported.
• For every dollar contributed by taxpayers to state and local pensions over 30 years, $11.45 in total output is supported in the national economy. That is because, for every dollar paid in pensions, employers contribute less than 20 cents; the rest of the money comes from employee contributions and investment earnings. That sounds like a bargain to us — government spends a dollar and that dollar provides $11.45 of national economic output.

Nationally, the largest economic impacts were seen in the manufacturing, health care, finance and retail industries.
What was New York State’s share of this economic benefit? New York State and local governments paid $17 billion in pensions to 700,565 retirees and beneficiaries, about $24,650 per year in 2006.

The $17 billion in pensions paid to retired public employees and their beneficiaries supported:

• More than 136,900 jobs that paid more than $10.5 billion in total compensation.
• Over $24.0 billion dollars in total statewide economic output.
• Over $4.1 billion in annual federal, state and local taxes.

New York State’s pension expenditures have the following multiplier effects:

• For each dollar paid out in pension benefits, $1.41 in New York State economic output was supported.
• For every dollar contributed by New York State taxpayers, $9.61 in total New York State economic activity was generated.

You must be our echo chamber in the battle to preserve our pensions. We must help our pension-deprived private sector counterparts get DB pensions and the information in this report can help us by pointing out the positive side of pension protection. Do you really want your loved ones to have to live off of their savings? All of you probably know someone who has had to change their retirement plans because of what happened to their retirement savings in 2008.

Quarterly Account Statement (QAS)

The mailing of the fourth-quarter 2008 QAS has been completed. Included with the statement was a prominent flier entitled “Where Will Your Money Go?” If you do not keep your beneficiary up to date, your money may not go to your intended beneficiaries. Your QPP and TDA beneficiaries are listed on the reverse side of the flier. You must check to see if you have indeed named a beneficiary or beneficiaries and, if you have named beneficiaries, whether they are still appropriate. Did your life change because of marriage, birth, death or other reason?

If you need a beneficiary form, you can get it from either TRS or UFT.

TDA participation for 2008

As you know, the Tax-Deferred Annuity is a voluntary supplemental retirement savings program permitted under section 403(b) of the Internal Revenue Code. The program is designed for educators, health care workers and cultural employees. It is similar to section 401(k) plans in the private sector and to section 457 plans for governmental employees. By the way, Teachers’ Retirement System members can contribute to both the TDA and the city’s Deferred Compensation plan (457). For information on the city’s 457 plan, you can call 1-212-306-7760. If calling from outside of New York City, call 1-888-DCP-3113.

The TRS/TDA program has been proven to be one of the most widely favored benefits achieved by the UFT for its members. As a matter of fact, while every school system employee in the country is eligible to participate in a TDA plan, only 33 percent do. The TRS/TDA program has a participation rate of over 68 percent.

The highest participation rate is 77 percent in the age-55-and-above group. The group that is furthest away from retirement, the 24-and-under group, is participating at about a 38 percent rate.

Retirees have been able to defer removing their TDA accounts from TRS since 1988. They believe the investment choices meet their needs, are understandable, and the cost for continued professional management is minimal. Retired members can remove TDA funds from TRS at any time, but are not required to remove any funds until they reach age 70½ — Required Minimum Distribution (RMD) age. At that time, they must begin withdrawing from their TDA accounts a minimal amount as determined by the IRS. This RMD is suspended for 2009 because of a law lobbied for by the UFT. This is designed to ease the tax burden on retirees during these uncertain economic times.

Why the Employee Free Choice Act matters to us

The outgoing president of the labor-related senior group Alliance for Retired Americans left with an important statement: “We cannot have a solid, stable retirement unless we have a solid, stable middle class. And unions are key to that middle class. Union workers are three times more likely to have a defined-benefit pension plan than nonunion workers. And union workers are five times more likely to have health insurance than nonunion workers.”

This is why we have to support the growth of unionization among privately employed workers by supporting the enactment of the Employee Free Choice Act now before Congress. As you can imagine, big business is vigorously fighting enactment. We must prevail, for only when more Americans are covered by defined-benefit, traditional pensions will “pension envy” go away — and so will the attacks on our pension plan.

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“Secure your future” is compiled and written by Mel Aaronson, Sandra March and Mona Romain, teacher-members of the NYC Teachers’ Retirement Board. For further information on items discussed, call your UFT borough office or the TRS.

• BRONX: 1-718-379-6200
• BROOKLYN: 1-718-852-4900
• MANHATTAN: 1-212-598-6800
• QUEENS: 1-718-275-4400
• STATEN ISLAND: 1-718-605-1400