Recruitment is a key issue in the public pension debate. While pensions have virtually disappeared from the private sector over the past decade, almost all public sector employers still offer defined benefit pension plans. Public sector wages are offset by retirement benefits, and many argue that recent benefits cuts will affect worker retention and quality.
According to the National Retirement Risk Index (NRRI), over half of today’s working families are not saving enough to maintain their pre-retirement standard of living. The NRRI is based upon target replacement rates which assume a household’s goal is to accumulate enough wealth pre-retirement to maintain the same standard of living during retirement. Because lower-income families spend a higher portion of their income on basic needs, target replacement rates vary depending on the income group.
The Social Security Administration's 2014 Trustees Report found little change from the previous year. While Social Security’s 75-year deficit rose slightly from 2.72 percent of payroll to 2.88 percent, the overall date of the trust fund’s exhaustion is still 2033 and the deficit is still 1 percent of GDP. After the trust fund runs out in 2033, payroll taxes would be sufficient to cover around three-quarters of benefits, assuming tax rates and benefit formulas remain constant.
Some state and local governments issued pension obligation bonds (POBs) to pay their required pension contributions. POBs are debt securities used to pay unfunded accrued actuarial liabilities in a public pension plan. Since 1986, state and local governments have issued around $105 billion in pension obligation bonds. The bulk of POB activity has centered in 10 states, including Illinois and California.
While there are only a few winners and a much larger pool of losers under current pension systems, a smooth accrual model would allow more teachers to gain secure, retirement benefits from the onset of their careers.
