We’ll admit it: We have a Google alert set for retirement research. But before you write us off as hopeless public finance nerds, hear us out. We regularly comb through new studies on the complex topic of retirement not because we’re gluttons for punishment, but because developments in this space have ramifications for many other issues we care about, from state tax and budgeting policies to the strength of social safety nets.
This month, we’re excited to launch a new feature in which we share what we’re reading with Arnold Ventures’ avid followers. Several studies out this summer have added nuance to our understanding of how big, complicated public retirement systems impact the lives of individuals. These studies reflect a new trend in pension research. Early on, the field focused on the size of unfunded pension liabilities, but now experts are seeking to better understand the true drivers of debt and how it affects today’s workers. Here are three pieces we have been talking about around the metaphoric water cooler.
Why is Public Pension Reform so Hard?
A brief written by the Heller-Hurwicz Economics Institute argues one of the main challenges in pension reform is the misalignment of interests between policymakers and taxpayers. The institute suggests risk-sharing plans in conjunction with higher public wages to bridge this gap.
Our next question: How do we foster better discussion about this issue? With another recession looming, policymakers need to move past the rhetoric and have a plan for what to do during a downturn. Lessons from the 2008 crisis show how important planning and fiscal discipline are for long-term solvency; retaining public workers; and continuing to provide public services.
National Study of Local Government Pension Costs, 2005-2016
Sarah Anzia, a researcher at the University of California Berkeley, called out in a new paper on pension costs the fact that states with high-levels of debt have cut benefits for workers — rather than raising revenue to fund their promises.
Our next question: If today’s benefits are modest, how much are pension costs being driven by tabs that were racked up decades ago? It’s a question we’re thinking about a lot recently after reading a forensic analysis on Connecticut, written by researchers at the Center for Retirement Research at Boston College. The study showed the extent to which legacy debt contributed to the financial stress of the state’s poorly funded plans. It also begs the question of how much current workers should pay for costs they did not incur.
Reducing Regulatory Obstacles to Annuities in 401(k) Plans
Brookings researchers described several possible tactics to encourage more employees to annuitize their defined contribution plans, including: enacting regulations that protect employers who sponsor a plan and provide an annuity to their workers; making it easier for workers to roll over their annuity when they change jobs; and reforming laws that require workers to withdraw a minimum amount from their retirement savings annually.
Our next question: Can we help people better understand how to transform retirement savings into lifetime income? Savings are important, but it takes more than a lump sum to ensure financial stability. Annuities are a piece of that puzzle, but we should continue to search for more ways to promote secure retirement.