Spain will pay workers to postpone retirement as part of a pensions reform strategy that analysts warn does not go far enough to cut a huge deficit in the system.
With nearly 30 billion euros ($36 billion) of annual losses in 2020 and rising, Spain’s social security budget is one of the biggest contributors to the country’s ballooning public deficit.
The European Commission has long demanded that Spain reform its pension system and has made it a condition for accessing European Union economic recovery funds.
Under a planned reform unveiled earlier this month that aims to get more people to work longer, Spain will give cheques worth up to 12,000 euros ($14,000) per year to retirement-age workers who postpone their retirement.
The 2013 reform also gradually increased the legal retirement age to reach 67 in 2027 from around 65 years currently.
Jordi Fabregat of the Esade business school said part of the problem is that Spain offers generous public pensions, with monthly payments amounting to 80 percent of a worker’s final salary compared with an average of 55 percent for all of Europe.
Arizona and Michigan have enacted more than a dozen substantive pension reform bills over the past five years. Credit-rating agencies and national retirement experts have cited Arizona’s public-safety pension reforms. Moody’s Investors Service gave Michigan’s teacher retirement reform a “credit positive” review because the state and participating local governments “will no longer carry the entire burden of investment performance risk for new employee pensions.”
Pension reform need not be partisan. After gaining input and buy-in from unions for police officers, firefighters and other public employees, New Mexico Gov. Michelle Lujan Grisham, a Democrat, overhauled her state’s public-employee pension plan for workers who aren’t teachers. “We must make changes now—the alternative is to saddle New Mexicans with unacceptable risk,” Ms. Grisham said, urging fellow Democrats to pass reforms. In 2018, Colorado legislators bridged their differences in a divided government to pass comprehensive reforms that increased employee and employer contributions, reduced cost-of-living adjustments, raised the retirement age, and expanded the use of defined-contribution plans for future employees to address the chronic structural underfunding of the state’s main public pension system.
Which is why every politician and every voter in Illinois ought to know how Arizona managed its 2016 reform of the 48% funded Public Safety Personnel Retirement System, which had a cost-of-living adjustment calculation that everyone agreed was broken, including the unions themselves. But Arizona shares with Illinois a constitutional protection against pension changes, specifically stating that “public retirement systems shall not be diminished or impaired.”
So how did they implement this change? In a two-step process, the legislature passed reform legislation and then placed on the ballot a constitutional amendment which inserted a new clause into the state constitution: “Public retirement systems shall not be diminished or impaired, except that certain adjustments to the public safety personnel retirement system may be made as provided in Senate Bill 1428, as enacted by the fifty-second legislature, second regular session.”
This meant that the citizens of Arizona could vote on this pension change without having to worry about whether they were authorizing any unknown future changes to pensions that they might not have wanted.
A bill to change the pension plan for public employees will be one of the last measures the Legislature will consider.
It would affect people hired after January first, 2023.
Right now it’s a “defined benefit” plan. The bill would make it a “defined contribution” plan.
The current system has an unfunded liability of $1.4 billion. And the proposal would put money toward the current plan over several years to pay that down. Supporters say people who are on the defined benefit plan would have an option to convert to a defined contribution plan, but that would not be mandated.
A closer look at the FRS shows that there is no problem to be fixed, leaving SB 84 little more than a vehicle to divert millions that would appreciate over time into alternative — and riskier — investment funds managed by Wall Street firms friendly to Republican politicians.
The Senate’s consternation over Florida’s retirement program might surprise people who actually know something about it. The state’s pension program still has a AAA credit rating and a very manageable liability relative to the size of Florida’s economy. Its funded ratio sits among the nation’s best. Its sizeable returns on investment pay the bulk of retirement benefits.
“I would say overall that we’re in a reasonably good place, and we’re heading in the right direction,” said Ash Williams, executive director and chief investment officer for the State Board of Administration, the body responsible for managing the state’s defined contribution program.
Chilean President Sebastian Pinera on Sunday announced the government will launch its own bill to allow citizens to draw more from their private pensions in a last-ditch attempt to kill off a similar move led by the opposition.
Pinera said his proposed rival bill would be subject to means-tested taxation and would allow for the withdrawn funds to be gradually repaid through state and employer contributions.
The president said his initiative was a better option than the opposition’s bill, which the government says would leave millions of future pensioners with little to no savings.
The retirement age for employees in the public sector and at state-owned enterprises is set at 60 for men, 55 for female office workers and 50 for female blue-collar workers. This has remained unchanged since around the time of the founding of the People’s Republic of China in 1949, even as life expectancy has risen to more than 80 in urban areas.
The government work report presented to the National People’s Congress in March stated that “the statutory retirement age will be raised in a phased manner” as part of the new five-year plan for 2021 through 2025.
Beijing sees this as necessary to alleviate pressure on the social safety net and head off a labor shortage that could set it back in its power struggle with Washington. But resistance is strong from young graduates concerned about the impact on their career prospects as well as from grandparents expected to care for grand children after retirement.
The Time to Rescue United States Trusts, or TRUST Act, would establish bipartisan, bicameral commissions to address the long-term solvency of major trust funds.
The Congressional Budget Office projects the Highway Trust Fund will be insolvent by 2022, the Medicare Hospital Insurance Trust Fund in 2026, the Social Security retirement fund in 2032, and Social Security Disability Insurance in 2035.
While many may be talking about early retirement, few are actually driving off into the sunset in their Overland campers — yet. According to figures provided by Pearce, about the same number of people put in for retirement during the first three months of 2021 as during January, February and March of last year.
But her office did see a “significant increase,” she said, in employees asking about how much it would cost them if they purchased enough retirement credits to exit the workforce early.
Editor of the Reformer: As we all know, the state pension problem has been festering for years now. Governors, legislators, state treasurers and Pension Investment Committee members have come and gone without a suitable resolution. Kicking the can down the road, mostly driven by politics and simple indifference. Both the state employees and Vermont tax payer deserve a permanent solution to this problem now.
Thanks to the state treasurer who strongly flagged the problem again with some specific recommendations.
At this point we know what the governor does not want, but what is his version of the solution? The governor has watched this for nearly six years. I would hope he would have been investigating and drafting a set of solutions from his perspective. The governor has at his call a strong financial leadership team and executive staff who are well positioned to develop an informed detailed solution. It is time he shares his solution with the legislature, his state employees and all Vermonters.
The high drama might be over for a while, but pension reform remains a high priority in the Legislature.
This week, the House Government Operations Committee is considering a new draft proposal to expand the membership of the Vermont Pension Investment Committee (VPIC) and establish a task force to study possible solutions to the state’s thorny unfunded pension liability problem.
This is the other shoe from House leadership’s decision two weeks ago, under pressure from state employee unions, to focus on governance now and study the solutions to unfunded liability over the summer. The unions had widely panned the initial proposal for reform as forcing them to work longer, pay more, and get less.
That liability is estimated at $5.6 billion, with about $3 billion in pension benefits and another $2.6 billion in health and other benefits for retirees.
As a committee draft proposal, it doesn’t have a bill name. That makes finding it on the relevant committee page a little more challenging. In this case, if you go to the documents tab on the Government Operations page there’s a “pensions” folder. Click on that, and on “bills,” and there you will find “21-0967 — An act relating to the membership and duties of the Vermont Pension Investment Committee and the creation of the Pension Design and Funding Task Force.”
Chile’s Labor Minister María José Zaldívar submitted her resignation Wednesday to President Sebastián Piñera, who accepted it and announced he would appoint Deputy Patricio Melero to succeed her.
Zaldívar’s intentions to leave her job were no surprise as the pension reform failed to go her way. ”I highlight her tireless effort to carry out the reform of the pension system to improve the benefits of millions of current and future pensioners and lay the foundations for a fairer, more supportive pension system with better pensions,” said Piñera.
But Senate Speaker Adriana Muñoz of the opposing Party for Democracy (center left), expressed her dissatisfaction: “It seems complex to me to continue holding this debate with a government that changes our interlocutors every three months.”