Future without adequate retirement income not a promising one

When Louis Malfaro, president of the Texas American Federation of Teachers (AFT), ponders a future without access to adequate retirement income, it’s not a promising picture he imagines.
“If you wind the clock back 75 years, the majority of old people lived in poverty. That’s what we are going to head back to when people retire and don’t have adequate income. What we will see is people working longer, living shorter lives … not having independence.” 
It also means that society will have to come up with other ways to help seniors avoid poverty, he adds.
“I imagine we will see more and more older people having to take food and housing assistance, and all of that ends up costing us. There is an economic and psychological advantage to creating systems where people are able to age in place and with dignity.”
Despite research and analysis showing the economic and social value of the defined benefit pension approach to accumulating and providing retirement income, and the efficiency and effectiveness of the model in doing that, advocates for DB must continuously push back against forces and arguments that seek to dismantle the model, continues Malfaro.
“It’s very frustrating. We seem to be living in times where it’s becoming more and more socially acceptable to let people (live in poverty). Who wants to live in a society like that? I want to live in a society where we help someone who is indigent, struggling or disabled – where we establish systems for people to succeed.”
Canada, he says, is doing a better job ensuring a minimum retirement income, although data shows that the poverty rate for Canadian seniors, particularly single retired women, is on the rise. A defined benefit pension, says Malfaro, provides a stream of reliable income for life, preventing retirees from falling into poverty.
While the rationale showing the value of DB is readily available, the model faces opposition from at least two fronts, he offers. 
“One is an ideological belief that it’s not the role of the government to help people in that regard … if people want to save money for retirement they should do it themselves through the services available from the market, It’s a very ideological and illogical way of looking at it. So, it’s ok to have Social Security but we can’t go a step further and help people to save in other ways?”
Another factor, he says, is one of competition. If people save into a public system, they likely won’t also seek market solutions from the financial services sector. 
The Texas AFT is a union that represents 65,000 members across the state and looks after the interests of teachers and other employees working in the school system, including nurses. It is affiliated with the American Federation of Teachers, which has 1.6 million members. While advocating for a wide range of social services and programs for its members, the federation actively counters what Malfaro calls misinformation about DB spread by its critics.
“The premise that there is something inherently problematic about DB pensions is a completely false argument,” he says, pointing out in an earlier column published in USA Today that Texas DB plans are in sound shape and “are on track to meet their promises.” 
In that column he wrote that opponents of DB plans were trying to connect problems with the pension systems of Dallas and Houston, an “exception, not the rule,” with all public DB plans in the state in a bid to drive a move to a DC-type scheme for public employees.
Constant vigilance, he adds, is needed to not only reply to campaigns against DB, but also to advocate for all citizens to have a secure and dignified retirement, a sentiment that will resonate in Canada among those who pushed for an enhancement of Canada Pension Plan (CPP) benefits and better pension plans.
“We believe our fight is not only to protect our pensions, but also to expand (coverage) to other people who don’t have one,” says Malfaro, who is also chair of Texans for a Secure Retirement, which spreads “the word about our concerns for retirement security.”
A number of states are or have pondered shifting their pension systems from DB to DC, a move the public does not support, according to research from the National Institute on Retirement Security (NIRS). Kentucky is one such state currently pondering a proposal to move to DC, and the data shows that 86 per cent of Kentuckians support DB, a number mirrored across the country.
Further research from the Canadian Public Pension Leadership Council (CPPLC) and the NIRS show the costs associated with a move from DB to DC; the latter is a case study of three states – Alaska, Michigan and West Virginia – that made the switch, and the study finds a misconception exists that DC plans save money compared to traditional pensions.
West Virginia eventually moved new hires back to a DB plan.
Labour activists point to a connection between union membership and better benefits, including pensions. It’s a relationship that can be objectively proven, says Malfaro.
“Research shows that people with a union contract who work in the same sector of the economy as non-unionized workers have better wages, access to better healthcare benefits and are more likely to have a retirement plan,” he states, adding that unions themselves are facing determined opposition.
“We just finished a legislative session here in Texas where one of the items … was to outlaw the practice of public sector workers choosing to have their dues deducted from payroll. The only reason for doing this was to try to beat down the political power of unions, and the same thing is happening with pensions.”
At the federal level, legislation to roll back an Obama-era policy to facilitate the development of state-run plans was passed by majority Senate Republicans. It ended the regulatory safe harbours created to exempt state- and city-run retirement plans from provisions of the Employee Retirement Income Security Act (ERISA).
The plans are DC in structure, but pool assets to generate greater returns, are structured to be professionally managed, automatically enrolled eligible workers (without an occupational plan) and operate on a low-fee basis. States are vowing to carry on with the plans regardless of federal action.
“We are making the argument now that people who work for an employer who doesn’t offer a pension should be able to join some sort of public option,” says Malfaro.
Advocates for adequate retirement income point out that the promise of a pension is in fact a situation of deferred wages, and the breaking of that promise results in a less secure retirement. With teachers in Texas among many American public sector workers not eligible for Social Security, the keeping of the promise carries extra value, he continues.
“That makes the importance of a defined benefit pension even more important because these folks are not likely to receive much in the way of Social Security.”
Pensions, says Malfaro, are caught up in an ideological fight between people who think the market can solve all of our problems and needs, and the “majority of us who believe the market economy is splendid as far as it goes, but it only goes so far. 
“We really need systems in place to help and protect people and I think DB pensions are one of the greatest ideas ever. I see it as a social compact and we who are advocating for DB need to win the messaging war.”