America's Retirement Crisis

Remarks by Randi Weingarten (as delivered)
The National Council on Teacher Retirement Conference
La Jolla, Calif.
October 14, 2015

Thank you Meredith Williams, Leigh Snell and all of you for this opportunity to speak—and to be with people who deeply understand the import of retirement security.  Kudos to you for including participant trustees as part of your leadership team. And a special shout out to your President Jim Sando, a long-term trustee on Pennsylvania Public School Employees Retirement System (PSERS), and leader in the Pennsylvania Education Association. 

Many in this room can take pride in knowing that the work you do every day enables hundreds of thousands of career educators to retire in dignity with a secure pension. This is literally life-changing work. It is the epitome of dignity.

But retirement security is out of reach for an alarming number of Americans. America has a serious retirement crisis.

The crisis isn’t what those with the biggest bankrolls claim—that public employees are to blame for America’s fiscal problems and that their pensions, which are deferred compensation after a lifetime of work, should be slashed. Like John Arnold, the former Enron executive who walked away with a fortune from the bankrupt company, and has spent tens of millions in his crusade to deny public employees the benefits they earned--and were guaranteed at retirement. This, after public pensions reportedly lost more than $1.5 billion as a result of their investments in Enron.

And Dan Loeb and Bruce Rauner, who have piled up fortunes off of public pension investments at the same time they support abolishing such benefits.

The crisis is not the defined benefit pension plans that public employees pay into over a lifetime of work, which provide retirees an average of $26,354 annually. (Although we must address the "pension holidays” that some public officials have taken, like the Governors of New Jersey and Rhode Island. They failed to make their required contributions to these plans while, by the way, the workers consistently contribute—and then officials tell angry voters who don’t have pensions that the state can either fund public pensions or pay for other services like roads and schools. That’s what you call a manufactured crisis.)

The crisis is not the cost of such defined benefit plans, which may ultimately cost taxpayers far less than risky, inadequate and increasingly prevalent 401(k) plans. In fact, a National Institute on Retirement Security study found that DB pensions cost half as much as 401(k) plans because of lower costs, better returns, and pooled longevity risk.

It’s not Social Security, which is the healthiest part of our retirement system, keeps tens of millions of seniors out of poverty and could help even more if it were expanded.

The crisis is that we are on the cusp of a Boomer Tsunami—10,000 workers turn 65 everyday—and most of them lack the essential elements of a secure retirement—pensions and adequate savings. They’ll depend on Social Security to get by once they stop working. And for many that is just not enough. Keep in mind that 40 percent of K-12 teachers are not covered by Social Security.

With the decline in manufacturing jobs, GAAP and the Pension Protection Act, private sector defined benefit plans have been decimated.  And individual savings are not making up for this. Twenty-eight percent of workers have less than $1,000 in savings and investments that could be used for retirement.

This lack of wealth is devastating for countless individuals. And it will be a dangerous drag on our safety net systems and our economy. We already have the false choice debate—pitting investing in our future against taking care of our seniors.

Retirement insecurity is the new normal in America. It’s a direct effect of the shameful economic imbalance in the United States, which is manifest in inadequate and stagnant wages, and skyrocketing assets for the elite few and dwindling assets for the many. Twenty-five hedge fund billionaires make more money than all the kindergarten teachers in the United States.

Think about it: The “point-zero-one-percent” (0.01)—16,000 families—own 12 percent of the wealth in America. And it’s pervading our democracy as well. Just 158 families have contributed half the early money to presidential candidates. The situation looks even worse when you drill down. On every count, people of color own less wealth than white Americans. African Americans and Latinos are about two and a half times more likely than whites to have zero or negative net worth. Women are less likely than men to own almost every type of asset.

The lowest 90 percent of the population own only about 9 percent of the stock market.

Trickle-down economics looks downright magnanimous compared to today’s “winners-take-all” economy.

You’d think this would cause a national outcry and that elected officials would be doing everything in their power to protect and rebuild the middle class.

But you and I know that’s not what happened. When our economy crashed and Americans lost their jobs, their homes and their life savings, the right-wing decided to blame teachers, firefighters and other public employees and our modest pensions for the economic meltdown.

Right-wing governors went after public employee collective bargaining rights.

Legislatures across the country reduced and attacked pension benefits—mostly for new hires—and increased employee contributions.

Instead of focusing on creating jobs and building retirement security for all, they tried to divide us and make public employee pensions seem like a luxury for the few instead of something we should be working to guarantee every American.

The AFT and other unions are fighting back against attacks on retirement security--and get hit as a result with a direct attack on labor unions’ very existence.  Ironically, unions, which built the middle class, are now only institution that provides American workers and their families with a voice at the ballot box and the bargaining table.  We have tried to be the counterweight to a balance of power that has swung so far in our democracy and our economy in favor of the super-rich “haves.” And we must make the argument - as Matthew Hilzik in the LA Times did so wonderfully, that there is a value to experience in the classroom, and defined pension plans are designed to value a career in teaching, not a revolving door.  This is particularly important now at a time when California, Indiana, Kansas and other states are facing a teacher shortage.

It is our moral obligation to fight for retirement with dignity after a lifetime of work. And we must make that fight for all. That starts with debunking this island of privilege notion about public pensions. And using public pensions- and the idea of pooled professionally managed assets as a building block to help secure retirement security for all--and take on others who try to  pit working Americans against each other. 

And the tide is changing. Support for reliable income from a pension is high and growing. Eighty-two percent of Americans say a pension is worth having because it provides steady income that will not run out. And no wonder, because it is a dark, dark thought to consider when the years of earning a paycheck are over and whatever retirement income runs out.

We have a lot of educating still to do. Many don’t know that defined benefit pensions are deferred compensation--earned over a lifetime of work and most beneficiaries pay into their plans. The big differences between defined benefits and defined contribution plans are who bears the risk, and the amount that has to be put in.

These benefits not only provide a guaranteed minimum income, they help stabilize the economies of our towns and cities, especially in tough times. A study by the National Institute for Retirement Security found that for every one dollar paid out in public employee pension benefits, $2.36 of economic output is generated.

So to make retirement a time of dignity, not insecurity or poverty, means changing the debate on public pensions. It means not just defending our plans, as important as that is,  but zeroing in on how we win real retirement security for all Americans; and looking at how we can use our pension resources to invest in rebuilding America.

Public employee pension plans in the United States are generally well-funded and sustainable. According to the 2015 Wilshire Consulting report on state retirement systems, the estimated funded status for the 131 state pension plans was 80 percent in 2014 up from 64 percent in 2009.  They are a bright spot in America’s gloomy outlook for retirement. You should rightly take a bow for this, but we can’t bow out of the larger crisis. When the Federal Reserve reports that one in three adults have zero saved for retirement, we can’t turn a blind eye. We have a role to play as concerned citizens and knowledgeable professionals.

While many if not most Americans could save more for retirement than they do, many are simply strapped. For many Americans the lingering economic downturn, soaring student debt, diminished home values, the responsibility of caring for aging parents and other financial demands have made it hard, if not impossible to save for retirement. And for those earning minimum wage or not much more than that, saving for retirement sounds like a cruel joke.

The American Federation of Teachers has taken the lead on a number of initiatives and partnerships to address retirement insecurity in the United States.

First our Committee on Revenues and Retirement Security developed a number of retirement reform principles to achieve retirement security for all.

We believe that:

• coverage should be universal;
• costs should be shared fairly between employers, employees and the government.

Benefits should be portable in a 21^st century economy where workers frequently change jobs. Defined benefit plans are already portable in the private sector within industries (like trucking, construction, entertainment and food service). We could take a page from them (Taft-Hartley multi-employer plans) and start to develop the same thing in the public sector.

Pension plan governance should ensure adequate funding and risk management.

• States and other employers should pay their annually required contribution every year.
• All future changes to benefits should be reviewed for their impact on the plan’s long-term financial strength.
• Assets should be pooled and invested by professionals, who are fiduciaries of the plan.

We’ve partnered with a bipartisan group of state treasurers, large Wall Street firms (KKR, Blackstone) and unions through the Georgetown University Center for Retirement Initiatives (CRI). The focus of CRI is to expand private sector retirement coverage whereby state pension plans can play a role in managing retirement for private sector workers and small businesses in a much more efficient way than the current 401(k) model.

Twenty-seven states are now pursuing plans for private sector workers and businesses that “pool and professionally manage” retirement assets. This is a move away from the 401(k) model, and a signature characteristic of a defined benefit plan. We support the concept that earned pension benefits should be retained for retirement and should be portable when workers change jobs.

Through our work with the Clinton Global Initiative and other unions to help rebuild the nation’s infrastructure, we’ve demonstrated that pensions are economic engines and themselves can invest in good jobs, rebuilding our country and our schools. Beginning in 2011, we've led a commitment that has resulted in pension funds allocating $14-billion-dollars to invest in U.S. infrastructure. The AFT is working with our members’ pension funds to promote a virtuous circle—responsibly investing retirement funds to help meet crucial infrastructure needs, generate new tax revenue, create tens of thousands of good jobs and deliver a sound rate of return.

To date, $11-point-5-billion-dollars have been used in projects to produce a steady return. At least 50,000 good jobs have been created and more new jobs are on the way, with a total of 140,000 expected, including 15,000 jobs for the renovation and upgrade of LaGuardia Airport (where CalSTRS is one of the key anchor investors). That's right— the airport New Yorkers love to hate will soon be getting a much-needed makeover.

Former President Bill Clinton characterized this approach as a long-overdue model: "It's the proper way to invest in our economy because it works. These types of investments are a better job-growth strategy than financial transactions."

In McDowell County, W. Va., the eighth-poorest county in the nation, the AFT has spearheaded a public-private partnership that got off the ground three years ago. Already, we’ve helped bring dental and health care, internet access, addiction treatment and educational improvements to McDowell. And now, with the AFL-CIO Housing Investment Trust and other private sector partners, we are raising funds to build a $6-million-dollar complex where teachers and other professionals will live.

Just two weeks ago, the AFT announced yet another project—this time to invest in early childhood infrastructure. As more school systems expand from K-12 to Pre-K-12—many of those school systems find themselves struggling to create space for their young learners. Together with Amalgamated Bank, the National League of Cities and other partners, the AFT launched a $100-million loan fund to renovate 350 existing classroom facilities in seven cities across the country. We will build an additional 250 new classrooms in three cities. This fund will provide affordable capital loans to public school early childhood education operators to build or improve classroom facilities. This commitment will benefit approximately 36,000 children over the next three years.

The AFT has also explored ways for individual members to invest part of their 403(b) and 457 accounts in rebuilding America. We are working with the Nuveen Investments bond fund to do just that. Projects include renovation of the NYC subway and, here in California, the Bay Area Rapid Transit and modernization of Cal State campuses.

We are also concerned about protecting investors. Research shows that American families are losing about $17-billion-dollars a year to an industry that favors investment brokers over investors. An article in the Wall Street Journal earlier this year provided stark example of how financial advisors can be incented to recommend one investment product over another.  In one instance, financial advisors were offered a new Maserati for selling their clients at least $7.5 million in the company’s recommended investment products, and a BMW, Range Rover or Porsche to those who hit at least $6 million in sales.  Such incentives help explain why so many advisors are conflicted when recommending rollovers and investments into IRAs. 

The Department of Labor is considering changing the regulations that define investment advice that would be viewed as fiduciary in nature.  They are specifically targeting the lump sum roll overs from pensions, 403(b)s and 457 plans to IRAs as investment advice that is subject to what is best for the participant and not best for the advisor or agent. We are watching this closely to ensure that the rights and interests of individual investors are upheld.  

We also want to build on the lessons we have learned from all of the pension fights over these last few years and call out what’s wrong and advance what’s right.  For example, the state of New Jersey, which has not paid its actuarial required contribution (ARC) for a number years, just got the Supreme Court to rule that it can back out of the 2011 legislation that the Governor Christie lobbied for and signed while forcing employees to work longer and get less.  This is not right. 

So where does this leave us?

Our vision of retirement security must extend beyond maintaining the modest hard-won retirement benefits that too few workers currently have.

We need to create a new national compact to put pensions on a strong and secure path for all Americans. And we must have a retirement income policy that provides enough retirement income, from all sources, to keep retirees out of poverty.

Defined benefit pension plans are a critical piece to ensuring retirement security for all Americans. We need only look at the experience in West Virginia, where in 1991 they closed the defined benefit plans to new educators and replaced it with a 401(k) plan. By 2008, the average account balance was only about $34,000. In 2008, the West Virginia legislature agreed to allow workers to go back to the defined benefit plan if 65 percent of workers voted for it. The result? Nearly 80 percent of eligible voters elected to move back to the DB plan.

The United States should provide access to voluntary savings plans for all workers.

It’s time to have an open discussion about having public employees participate in Social Security.

Let’s use our collective proxy power to pressure corporations not to allow CEOs to enrich themselves instead of retaining and reinvesting more profit in the future.

We need to shine a light on hedge fund investments and the two-and-twenty model. This model shifts the downside risks to our plans, while hedge fund managers enjoy huge profits.

We need to expose right-wing ideologues like Enron billionaire John Arnold, who has spent $50 million of his own fortune on a nationwide effort to gut retirement security. (This after Enron’s implosion cost public pension funds and other investors so dearly). Enron's demise resulted in billions of dollars of losses to its

Arnold has sought to buy his way into groups like Pew and PBS, hoping his big checks will underwrite false attacks on workers. We have a message for Pew – when John Arnold writes you a $5 million check for tainted anti-pension research, you are no longer a trusted or impartial source of information in this vital debate.

We need to call out politicians who underfund our plans, force you to take riskier investments to meet rate of return assumptions, and then criticize you for taking more risk.

We’ve seen so much finger-pointing and unfair scapegoating directed at public employees and unions. The commitments by public pension funds demonstrate that public employees are focused on solutions in a fiduciary sound way to revitalize our communities, create jobs and strengthen our economy.

America’s retirement crisis is as consequential as our healthcare crisis. We mustered the will to do the hard work of extending access to healthcare to all Americans. We must also meet a just and civilized standard for retirement, so that retirement is a time of security, not poverty.