You know the name: John Arnold. The former Enron energy trader and Wall Street hedge fund manager funds most of the attacks on public pensions nationwide. How, exactly, does he orchestrate these attacks on the retirement security of working families? He pays other people to do his dirty work for him.
Social Security’s Trust Fund is projected to run out in 2034. As policymakers consider restoring financial balance to the program, one topic that may be discussed is how to structure any tax increases. Understanding why Social Security requires a higher payroll tax than a funded retirement program for a given level of benefits is a crucial first step in informing this discussion. The current “pay-as-you-go” approach is the result of the policy decision made decades ago to pay benefits far in excess of contributions for early cohorts of workers. By paying benefits in excess of contributions to early cohorts, the nation essentially gave away the Trust Fund that would have accumulated and, importantly, gave away the interest on those contributions. Thus, the payroll tax must cover not only the required contribution but also the missing interest. This paper addresses alternative ways to pay for this Missing Trust Fund, including a comparison of the size of the required changes and their distributional implications.
The brief’s key findings are:
The IPPFA would like to congratulate Scott Brandt on his appointment as Assistant Deputy Director of the Illinois Department of Insurance and head of the Pension Division effective March 1, 2018. Many will recall that Scott served as the Acting Chief Administrator for the Pension Division from July 2004 until March 2010 and then as a Pension Analyst for the same division from March 2010 until October 2015. From October 2015 until his appointment to Director Scott served as the Public Service Administrator of the Life Actuarial Unit of IDOI.
In the past Scott was a familiar face and frequent presenter or panelist at IPPFA conferences and seminars. With his return to the Pension Division we look forward to seeing him again, as his busy schedule permits, at future IPPFA events.
In a blog post last week, we discussed the fact that many Americans plan to work in retirement just to make ends meet. As we’ve mentioned before, though, many people won’t be able to continue working in retirement and may have to retire earlier than planned. A new report from the Schwartz Center for Economic Policy Analysis (SCEPA) indicates that many middle class families risk falling into poverty in retirement due to inadequate retirement savings.
It’s a well-documented fact that the United States is facing a retirement savings crisis. The simple fact is that many Americans are not saving enough to maintain their standard of living in retirement. Most retirement experts advise that workers should aim to replace 70 to 80 percent of their income in retirement. Most Americans will replace a significant portion of their income with Social Security benefits. However, Social Security is only supposed to serve as a floor to prevent extreme poverty in retirement; it is not supposed to replace the full amount needed for a dignified retirement. Social Security only replaces roughly 40 percent of income on average and that replacement ratio is declining.
Michael W. Frerichs, Illinois State Treasurer, to be Feature Speaker at the 2018 IPPFA Illinois Pension Conference.
Michael W. Frerichs
State Illinois Treasurer
Michael Frerichs (FRAYR’-iks) was elected Illinois State Treasurer in November 2014. In Illinois, the Treasurer’s office predates the state’s incorporation in 1818. Voters in 1848 chose to make it an elected office. Frerichs is the 74th person to serve in this role.
In Illinois, the Treasurer is the state’s Chief Investment Officer and Frerichs is a Certified Public Finance Officer. The office invests money on behalf of the state and local units of government. Mike also believes in providing individuals with the tools so that they can invest in themselves.
He does this by encouraging savings plans for college and trade school, increasing financial education among all ages, removing barriers to a secure retirement, and protecting residents from predatory companies.
The Treasurer’s Office actively manages approximately $25 billion. The investment approach is cautious to ensure the preservation of principal. The investment returns are significant: For every $1 spent to run the office, Mike nets $28 for the state’s residents.
Since taking office in 2015, Mike has made significant strides in the fight for consumers by making sure Illinois residents get what is owed to them through the Unclaimed Property Program. A record-breaking $159 million in forgotten cash and stock was returned to individuals, employers, and non-profits in Fiscal Year 2017. By making changes to the Bright Start and Bright Directions College Savings Programs, Mike has lowered fees and provided more investment options, making college more affordable for families saving for their child’s future.
Under Mike’s leadership, Illinois now leads a multi-state alliance that allows parents of children with blindness or a disability to save for their child without jeopardizing their federal disability benefits. Achieving a Better Life Experience Program (ABLE) is the national standard, offering high-quality and low-cost investment options.
Mike was born in the Downstate farming community of Gifford, Illinois. He graduated from Yale University and spent two years in Taiwan where he taught English to young students and learned to speak Chinese. He returned to Champaign County and launched his own technology business. He was elected to the Champaign County Board and elected Champaign County Auditor. He also served as a volunteer firefighter.
In 2006, Mike was elected Illinois State Senator representing East Central Illinois. As chairman of the Higher Education Committee, Mike championed efforts to make college more affordable. He also served as chairman of the Agriculture and Conservation Committee.
Frerichs currently serves as Vice Chairman of National Association of State Treasurer’s Legislative Committee as well as Trustee on the Illinois State Board of Investment.
Mike lives in Champaign with his young daughter, Ella.
No issue in America today better illustrates the divergent interests of working Americans and the 1 percent than pension reform. Substantial empirical evidence shows that America’s favored retirement vehicle — the 401(k), recently renounced by its own inventors — is grossly inadequate and will leave tens of millions of Americans with insufficient retirement assets. And yet states and cities are busy converting traditional pensions into these failing 401(k)s or equivalents, to the great benefit of money managers and the finance class.
Advocates of pension “reform” — which really means cutting or eliminating traditional pension funds — will tell you that such funds are a big drain on state and local budgets, since, as defined-benefit programs, they are obligated to pay workers a defined amount in their retirement. But that’s largely a question of political priorities; underfunded pensions are the result of, well, decades of underfunding pensions. The real reason for the attack on pensions goes deeper, and exposes the great and growing rift between America’s economic elite and everyone else.
IPPFA Retirement Coordinator is now being held NIU Campus, Hoffman Estates, Illinois.
Who in your municipality has all the answers they need? Probably no one. That’s where the IPPFA Retirement Coordinator program comes into play. When trained as a Retirement Coordinator you are the “go–to” person.
The Retirement Coordinator can be anyone in the municipality, a department head, union official, pension trustee, HR Director or Finance Director. Having more than one Retirement Coordinator may be beneficial as well.
Not only will the Retirement Coordinator have answers about retirement but in the event of a line–of–duty death or injury the Retirement Coordinator will have the information the injured employee or survivors will need to receive the help them to get through a traumatic incident.
The topics covered will include:
• retirement benefits
• taxation of benefits
• post-retirement health insurance
• Social Security
• Medicare and supplemental retirement benefits.
When pension reform happens, new workers often carry the biggest financial burden. But they don’t always have to.
When politicians talk about pensions, it’s usually about the enormous weight they place on government budgets. According to the Volcker Alliance, where we are consultants, state and local governments are on the hook for $1 trillion in unfunded pension liabilities.
Lawmakers on both sides of the aisle push for pension “reform,” a word often used in a positive sense, to rescue dollars that could instead be used for other services. But what about future retirees? Is pension reform positive for them?
In many cases, not so much.
The IPPFA was founded in 1985 as a not-for-profit organization whose mandate was to educate public pension fund trustees. In 2009 the IPPFA became the primary education provider for public pension fund trustees in the state of Illinois. Our members manage over eighteen billion dollars in pension assets.
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