New Jersey State Senator, Vin Gopal, is planning to introduce legislation barring the NJ pension system from investing in manufacturers of firearms and firearm ammunition. While we applaud his effort and legislative objective, given NJ’s significant underfunding and the burden that this is placing on the State’s fiscal status, I wish that his enthusiasm for pension reform would include other meaningful reforms while he’s at it.

Let’s see NJ’s Senate pass legislation that mandates that the annual required contribution (ARC) is paid. Let’s also restructure the oversight of the plan so that the asset side of the equation starts talking to the benefit side so that true asset/liability management can be attained.  Let’s mandate that NJ use multiple discount rates, and not just the return on asset assumption (ROA) so that the true scale of the underfunding is known and can thus be managed.

NJ needs pension reform in order to protect this important benefit but doing the same old, same old is creating a pension deficit that has the potential to create a devastating economic impact on the State’s social safety net, while likely leading to an exodus of well-heeled residents.

The 83 million-strong Millennial cohort are facing an uphill struggle to appropriately prepare for retirement. Despite the fact that this group is more highly educated than either the baby-boomers or Gen-Xers, they entered the workforce during the last 15 years when the U.S. economy was struggling with two major economic shocks.  This resulted in lower wages at the outset of their careers.

In addition to the lower wages, Millennials find themselves in jobs that don’t provide the same benefits – healthcare and retirement – that previous generations enjoyed, and we know through various studies that people just don’t save for retirement outside of an employer-sponsored plan.  Furthermore, more than 50% of this cohort is burdened with student loan debt, which on average represents more than 1/3 of their earnings.

Furthermore, this cohort is likely to live longer than the Baby-boomers, but will only begin to collect Social Security at age 67, which will be a financial burden for many, especially for non-college educated and lower income workers that have fewer options to remain in the workforce.

Millennials still have a lot of time to reverse their current situation, but they are on average well behind the savings rates of previous cohorts.  In addition, they are marrying later (50% fewer marriages at age 25 than the Baby-boomer generation), and purchasing their first home much later, which is another source of retirement funding.

The Center for Retirement Research at Boston College has come out with another piece measuring the current state of our retirees.  BC does a great job in this area, and we often use them as our go-to source for pension-related information. The article is titled, “Will the Financial Fragility of Retirees Increase?”

Here are the brief’s key findings:

Life expectancy in the U.S. has dropped for the second consecutive year.  This is the first time that this has happened since the early 1960s. Most of the decline is attributable to the diseases of despair, including drug overdoses, suicide, and alcoholism. We reported on this development last year, as well, attributing much of the despair to job losses and little prospect of finding meaningful employment after the age of 45.

The story is worse for men, as our life expectancy declined 0.2 years to 76.1, while the life expectancy for women remained constant at just over 81 years. It is inconceivable to me that a country as wealthy as the U.S., with all of its medical advancements, has a life expectancy that is comparable to Chili and the Czech Republic.  Overall we rank 26th of the 35 OECD nations.

Given these tragic results, I question the logic behind the blanket analysis that suggests deferring the taking of Social Security benefits until age 70. In an analysis that I performed in 2015, taking Social Security payments at 62 versus 70 had those taking the benefit earlier accumulating more payout until one was in their 82nd year. For those deferring the taking of benefits until the age of 66, that breakeven was in one’s 80th year.

CONGRESS TO ESTABLISH A JOINT SELECT COMMITTEE

Establishment Of Joint Select Committee.—There is established a joint select committee of Congress to be known as the “Joint Select Committee on Solvency of Multiemployer Pension Plans”.

GOAL.—The goal of the joint committee is to improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation.

IN GENERAL.—The joint committee shall provide recommendations and legislative language that will significantly improve the solvency of multiemployer pension plans and the Pension Benefit Guaranty Corporation.

The joint committee shall be composed of 16 members appointed

APPOINTMENT.—Members of the joint committee shall be appointed as follows:

(i) The Speaker of the House of Representatives shall appoint 4 members from among Members of the House of Representatives.

(ii) The Minority Leader of the House of Representatives shall appoint 4 members from among Members of the House of Representatives.

(iii) The Majority Leader of the Senate shall appoint 4 members from among Members of the Senate.

(iv) The Minority Leader of the Senate shall appoint 4 members from among Members of the Senate.

More to come.

We are pleased to share with you the Asset.Tv video from our recent conversation with Liz Claman, the anchor of the Fox Business Network show Countdown to the Closing Bell.  Our conversation touched on the U.S. retirement crisis and the Butch Lewis Act (BLA), which is a possible solution to the funding problems within multi-employer plans deemed to be in “critical and declining” status.

Think that the lack of retirement income isn’t having a profound impact on society already?  Please, think again! According to the Census of Fatal Occupational Injuries, the death rates for those workers aged 65 and older were three times the national average (2016 data).

Why are 65-year-olds still working?  Well, the median savings rate for working-age families is only $5,000 according to the Economic Policy Institute, and the demise of defined benefit plans is certainly exacerbating this incredibly difficult situation.

In addition to the lack of retirement income, older workers remain active for healthcare insurance despite the fact that remaining on the job increases the likelihood that they will get hurt.

The impact of remaining on the job hits men to a much greater extent than women. There were 1,838 job-related fatalities in 2016, and all but 110 were men.

There is no doubt that physical ability deteriorates with age, but leaving the workforce prematurely without any retirement savings is not an option for a significant and growing percentage of the U.S. workforce.

As we’ve said all along, moving responsibility for American workers’ retirements from entities that could handle the challenge and moving it to individuals with little ability to do so has proven to be faulty policy. It is going to get worse – not better!

L.L. Bean has terminated the defined benefit plan and is offering a voluntary buy-out.  Of the roughly 5,000 full-time employees, there are about 900 who are eligible to take a lump-sum distribution. To be eligible the employee must be at least 55-years-old with a minimum of 15 years at the firm.  No layoffs have been announced because the company believes that they are going to get the 10% reduction in force through this buy-out – good luck!

It was not announced what the “average” 15-year veteran, aged-55 would get when taking the lump-sum, but since that individual would have another 11+ years until they are eligible for Social Security, probably not enough to justify taking the lump-sum, as DB plan payouts are predicated on tenure and salary.  An employee terminating employment prematurely is going to negatively impact their future retirement earnings.  Furthermore, how many employees are capable of managing this lump-sum windfall?

Lastly, it was stated in the article that DC contributions would be ramped up, but for how long? These contributions are not contracts, and future contributions will be predicated based on the business’s fundamentals. Oh, and employees will have greater flex-time. How much can you buy with flex-time?

We are pleased to share with you the most recent interview for Russ Kamp on Asset.Tv where he provided an update on the Butch Lewis Act.  As we’ve discussed before, this Bill has the potential to be landmark legislation designed to save the promised retirement benefits for millions of Americans.

Thanks to Ron Ryan, Ryan ALM, KCS has been involved in shaping one of the three potential implementations provided that the legislation passes, and low-cost loans provided to these multiemployer plans with the funding status of “Critical and Declining”. We can’t think of a more important initiative within the U.S. retirement community than identifying solutions to the retirement funding crisis that we find ourselves in at this time.

As always, we thank the folks at Asset.TV for providing us with the opportunity to share our views on this and other critical retirement issues. A special thanks to Sarah Makuta, who conducted the interview and who did such a great job.  We look forward to our next conversation with you.