I am beginning to get more and more questions from teachers on what are the chances that IPERS will still be around for them when they retire. Recent headlines in the Des Moines Register include:
With headlines like these, no wonder teachers and other IPERS employees are concerned.
Here are my thoughts on the issue:
1) Overall, I am not too worried about the future of IPERS.
2) IPERS’ funded ratio is 80%. Yes, that is underfunded, and anything less than 100% sounds scary, this is better than most state public pension plans. Projections have it 100% in about 28 years.
3) There has been talk about looking into changing IPERS in some way. I focus on the words TALK and LOOKING. There has yet to be any legislation in final form to get even close to being voted on by the Iowa Legislature. This is a process. If there is going to be changes, we are probably early in the process.
4) As far as I am aware, there has been no elected official that has campaigned for and/or gone on record saying that they think we should get rid of IPERS entirely. Frankly, that would be dumb politically to do that. And that is why I am not overly concerned. There is not a lot of political reasons to move forward with changing IPERS, at least not without a lot of warning. According to IPERS, one in ten of Iowans is an IPERS member. This would not be popular.
5) But what about collective bargaining, you might say? That happened fast and it seemed to be out of the blue! Okay, valid point. But, I don't think it is a fair comparison. It may be true that not many Iowa Republicans campaigned on changing collective bargaining rules, but many Republicans (across the nation) have had negative opinions on collective bargaining over many years.
6) The last legislative session had a bill proposal, Senate File 45 that read:
Mandatory defined contribution pension plan for certain public employees: Requires the state retirement plans to develop defined contribution plans for employees hired as of July 2019. Requires the state retirement plans to conduct a study on these alternative retirement plans and submit findings and recommendations to the Public Retirement Systems Committee by October 2018.
Notice that above bill proposal would only have affected newly hired workers. If there was going to be a change, the most likely scenario would be that current workers would be grandfathered in.
7) If they were to phase out or freeze IPERS, most likely your benefits up to that point would be honored. It would be very important at that time for an IPERS employee to make some changes. Specifically to begin saving an appropriate amount in other retirement accounts in order to make up for the years no longer covered by IPERS, but it wouldn't likely be out of the blue. You would have time to make changes.
8) Changes are a possibility, and it is important that teachers keep aware of the situation and what is being discussed and considered.
9) You can take steps to prepare now. I already encourage teachers that they should be saving for retirement outside of IPERS for inflation reasons. If you want to prepare for the worst, a good strategy is to incrementally add to your savings rate into other retirement plans. This is a good strategy regardless!
All of this leads me to the conclusion that major changes are unlikely anytime soon. If changes are made, it will probably be years from now and will affect seasoned teachers less than brand new ones. We will most likely have appropriate time to prepare for negative consequences. But, keeping tabs on discussions is a good idea.
Teachers should start with making sure they are on track with their retirement goals regardless. Many families are behind for saving for retirement, even with no changes in IPERS, because their spouses may not be saving enough. Putting more into saving incrementally is a good idea if you are worried about changes being made.
Action steps that can be taken:
- Breathe. There is time to make preparations for these different possibilities.
- Sit down with your financial planner and make sure your family is on track for retirement planning with current rules in place. Have them make very conservative assumptions to show the possibility of rules changing.
- Keep abreast of the situation. Get IPERS alerts and stay tuned to our Teacher Wealth website. If major things are being discussed, we will update you.
- If you are worried, make manageable increases to what you can save for retirement each year.
I hope this helps you understand the current situation. Email me at Mike@teacherwealth.com if you have questions or thoughts on the matter.