Clearly, people are concerned about their pensions. Many are well-funded. But others, including multi-employer and state pensions, are having financial trouble. And some federal workers wonder about the government’s pension promises to them.
Karen Friedman is the executive vice president and policy director at the Pension Rights Center, and Joellen Leavelle is the group’s communications and outreach director. Last week, I invited them to answer readers’ questions about their pensions. Here are some questions they didn’t have time to get to from last week’s Color of Money live chat.
Broken pension promises
Q: Pension plans that are cutting benefits are characterized as having broken promises to retirees. But promises were made on both sides when pensions were established — pensions promised to take good care of you in retirement, while you promised to live only five years in retirement. So aren’t those who are collecting for 20, 30 and 40 years breaking the promises established at inception, too? I don’t think there is a way to solve this problem without people being willing to work longer.
Friedman and Leavelle: The pension promise, whether in a private, state or federal pension plan, is that employees give up wages while working in exchange for a monthly pension for life that they can’t outlive. No retiree promises, as the questioner asserts, that they will “live only five years in retirement.” That is a mistaken notion. Actuaries, the math professionals who advise pension plans on how to fund pension benefits, were fully aware that life expectancies were rising. As a result, mortality tables are always factored into the design of a pension plan. The problems have come in part because some employers have not adequately funded these plans. There have been outside factors, like industry and economic changes (such as the Great Recession) that have affected pension plans’ funding status.
However, whatever the reasons for underfunding, it is absolutely unfair for retirees to be penalized and blamed for the downward fortunes of pension plans. Retirees did everything they were supposed to do and met their end of the bargain. They gave up wages while working in exchange for getting a pension that they were promised would provide them (and their spouses) with specific monthly income that could never be outlived. This is the original promise of ERISA, the federal private pension law, and also of state and federal plans.
Q: I know the federal government switched to the 401(k)-like Thrift Savings Plan (TSP) many years ago, but won’t future federal retirees receive smallish pensions based on years of service? If so, is this benefit at risk?
Friedman and Leavelle: As the result of legislation enacted by Congress in the 1980s, federal civilian employees work under different retirement systems, depending on when they started working for the federal government. Generally, those who started work before 1984 fall under the Civil Service Retirement System (CSRS). Those hired after 1983 are generally covered by the Federal Employees Retirement System (FERS). Both systems provide retirees with a traditional pension annuity and the ability to participate in the 401(k)-like Thrift Savings Plan (TSP).
Employees participating in CSRS do not participate in Social Security but receive higher annuity benefits. They also can participate in TSP but do not receive matching contributions. Employees participating in FERS receive smaller annuity benefits, a government contribution and matches to their TSP contributions. For more information on each of these federal retirement systems, visit the website for the federal Office of Personnel Management at OPM.gov.
As far as your question about whether the pension benefit is at risk, we refer you to a chart in this Government Executive article stating that both the full CSRS benefit and the FERS basic benefit are backed by “the full faith and credit” of the U.S. government.
CSRS pension-cut concerns
Q: As a retired federal employee, I have heard recent rumors about proposed cuts to the federal CSRS retirement payments. I realize there are fewer and fewer CSRS-eligible folks still working, so how likely is it that my monthly check would be cut? Or would it more likely be a matter of lowering cost-of-living increases in the future?
Friedman and Leavelle: There could be efforts to try to cut federal retirement benefits. But we haven’t heard any concrete proposals yet. And in all likelihood, such proposals would only apply to benefits accumulated in the future, not those already earned. The FERS, CSRS and TSP help provide federal employees, who have been public servants, with important retirement benefits, which should not be cut. The Pension Rights Center will work with government employees and retirees and their unions to prevent cuts.
Federal retiree and survivor pension recipient
Q: One thing to think about is the benefits that come with a survivor’s pension. I am the retiree; my husband died before retirement age. The health benefits have been worth any amount for me and for our children, who are not yet 26. I receive a tiny survivor’s pension from my late husband’s employer via the PBGC — the result of a corporate raider’s actions in the 1990s. It isn’t just the money that matters for a pension. It’s the benefits, right?
Friedman and Leavelle: First, we’re glad that the Pension Benefit Guaranty Corporation exists so that it can provide you and many others with benefits that you are entitled to.
We agree that pensions are just one part of the full retirement picture. You are very fortunate to be receiving health-care benefits along with your survivor’s pension. As you point out, these benefits can be very valuable.
Retirement rants & raves
This is your chance to rant and rave (or both) about any retirement issue. Tell me what you love about retirement or what bothers you the most? What did you wish you knew? If you’re a young adult, what scares you about retirement planning? Send your comments to email@example.com. Please include your name, city and state.
Live chat this week
Join me on Thursday, Feb. 23 at noon (ET) for a live discussion about the Department of Labor’s fiduciary rule that President Trump has asked to be reviewed — again.
To participate in the discussion click this link.
If you want to read up, here are some of columns on the fiduciary rule:
Should your financial adviser act in your best interest? You decide.
Newsletter comments policy
Please note that it is my personal policy to identify readers who respond to questions I ask in my newsletters. I find it encourages civil conversation. I want my newsletters to be a safe place to express your opinion. On sensitive matters or upon request, I’m happy to include a first name and last initial. But I prefer not to post anonymous comments. (I do make exceptions when I’m asking questions that might reveal sensitive information that may cause discord in a family or marriage.)
Have a question about your finances? Michelle Singletary has a weekly live chat every Thursday at noon, during which she discusses financial dilemmas with readers. You can also write to Michelle directly by sending an email to firstname.lastname@example.org. Personal responses may not be possible, and comments or questions may be used in a future column, with the writer’s name, unless otherwise requested. To read more Color of Money columns, go here.