As the nation’s fifth largest mass transportation service, the Massachusetts Bay Transportation Authority (MBTA) has thousands of employees in and around the Boston area. Many of them have been counting on a lucrative retirement package to assist them during their golden years. The agency’s recent proposal could drastically alter the plans of many, as there are currently talks underway about reducing pension payments. Is the MBTA getting rid of retirement benefits altogether, or are they just making some prudent business decisions? Here’s what you need to know.
State of the Retirement Fund
In recent years, more and more MBTA employees have retired due to lucrative benefits packages. As a result, the MBTA now has more retirees than it does active employees. That along with the fact that there have been poor returns on investments has led to a retirement fund that is shaky at best. Current estimates claim that under existing conditions, the retirement fund would require an additional $1 billion in funding during the coming 18 years.
In an effort to shore up the fund, the MBTA recently proposed the following:
- Decreasing a worker’s annual pension benefits by half of a person’s Social Security income.
- Using a sliding scale to determine one’s pension payment. This sliding scale would take into account an employee’s years of service and age at retirement.
- Preventing unpaid sick time from being credited to an individual’s retirement plan, something that is currently allowed.
Although these changes would dramatically affect the pension fund, they would not be implemented retroactively and would therefore not affect those already retired.
Reaction from Union
Boston Carmen’s Union Local 589 is responsible for negotiating pension contracts between MBTA workers and plan facilitators. That group’s president, James O’Brien claims that contributions to the pension fund only accounts for around five percent of the transit authority’s budget. He claims that current workers have already paid into their retirement funds, and should therefore not be subjected to revised calculations based upon age.
O’Brien was also disgruntled over the proposed cuts based upon Social Security benefits, calling it akin to “taking Social Security away.” Meanwhile, MBTA acting general manager Brian Shortsleeve defended the idea, claiming it would nonetheless allow retirees to earn more than teachers and state employees, who are otherwise ineligible to draw Social Security.
Eye on the Future
After evaluating the proposal, it does not appear that the Massachusetts Bay Transit Authority is doing away with retirement. However, they do acknowledge that something must be done in order to prevent their pension fund from deteriorating any further. Union officials have indicated they are willing to negotiate, but would like to speak with members before making any specific proposals.
Let’s hope the MBTA and Carmen’s Union are able to reach a compromise and prevent the Massachusetts legislature from intervening-something that neither employees nor the government wants. As State Representative William Straus remarked “in my experience, if labor gets forced to the table painfully, it doesn’t play out well for bargaining issues in the future.”Continue reading
Despite the fact that small businesses have more employees and create more jobs than larger corporations, they offer little in the way of retirement benefits. In fact, a recent study by Pew Charitable Trusts showed that just 53% of all small-to-mid-sized businesses offer a retirement plan, leaving many Americans without coverage. A number of factors contribute to the lack of pensions, a few of which are discussed below.
Reasons for not Offering Plans
Business owners who were not offering retirement programs gave several reasons for not doing so, including:
- A belief that workers would rather have a higher salary or be offered other benefits in place of a pension plan. As a result, many businesses are more interested in providing health insurance or paid time off.
- A lack of an organizational structure to help manage a program.
- Having little or no knowledge concerning 401(k), Individual Retirement Accounts (IRAs) or Simplified Employee Pension (SEP) plans, which are primarily designed for small-to-medium sized companies.
Cost a Major Factor
The Pew study showed that companies are more likely to offer a plan once they have become well established. Once a business nears 75 employees, owners often feel they are stable enough to begin offering retirement benefits. This suggests that many new entrepreneurs are concerned they may not be able to handle the financial burden of a retirement plan at the same time they are faced with enormous start-up fees.
Cost may indeed play a major role in determining whether or not a company offers a retirement plan. Among those who do not currently administer one, 67% claimed they would be open to the idea of starting a plan if they noticed an increase in profits. Another 60% stated they would consider it if tax credits were offered as an incentive.
Reasons for Offering Plans
Among businesses who do offer retirement plans, the primary reasons for doing so are to:
- Help their workers save towards retirement
- Attract and retain the top talent in a given industry
- Boost morale and increase on-the-job performance
- Provide tax advantages to individuals as well as to the business itself
Full-Time Workers Benefit Most
The Pew study further delved into industry to see if certain types of businesses were more likely to offer pension benefits than others. What they found was that those involved in material moving, transportation, production, and professional services were more likely to have retirement plans than companies dealing with construction, maintenance, or natural resources. Ironically, businesses most apt to offer retirement benefits were also those who had more full-time workers.
Efforts to Increase Participation
Several ideas are currently being touted that would increase the number of small businesses who provide retirement plans. Doing so would ensure greater security for retirees, while reducing the amount of taxpayer dollars used for social services. Pew’s findings along with their ensuing report titled “Employer Barriers to and Motivations for Offering Retirement Benefits” should prove very helpful in developing private sector plans that will meet the needs of small and mid-sized businesses everywhere.Continue reading
One question people often ask about retirement involves when to start planning. If you are in your 20s, you may think you are too young to start preparing, in which case you should actually think again. When it comes to retirement savings, the sooner you begin putting money back the better-here’s why.
The Case for 20-Somethings
For many 20-somethings, the idea of saving toward retirement can seem like an impossible if not unnecessary task. After all, those in this age group are just starting their careers and may not have a great deal of money left over after making their student loan payments. They may also have other goals such as buying a home or starting a family that causes them to further reject the notion of retirement savings.
Saving for retirement during your 20s can be challenging, but here are a few benefits you could realize by starting early:
- Compound interest: Each year your money earns interest not just on the amount you have saved, but also on any interest earnings from previous years. In other words, the longer your money is in an account, the more you will earn in interest.
- Tax savings: Deposit your funds into a Roth or Individual Retirement Account (IRA), and you can enjoy tax deductions of up to $5,500 each year.
- No need to play “catch up”. Those who fail to save during their 20s often realize just how far behind they are once they reach their 40s and 50s. By this time, they must contribute a significant amount of money to a retirement account each money in order to catch up.
- Good savings habits. Make saving money a priority early on, and you will likely develop good spending habits that will keep you from needing to borrow money whenever hard times come.
The Case for Later
It’s all too easy to tell yourself that you will begin saving for retirement next year. Before you know it, one year turns into 20 or 30, and it suddenly hits you that you are far behind. Do not throw in the towel or give up hope just yet. There are actually quite a few good reasons to go ahead and get started even if you plan on retiring in only five to ten years:
- Most people earn their highest salaries during their 50s, meaning more is left over to save.
- Empty nesters who are no longer raising a family can also afford to put back more money, as can those who have finally paid off their mortgage.
- Many employer 401(k) plans allow those age 50 and older to contribute more money than their younger counterparts in order to help them finish strong.
It is never too early to begin planning for your retirement. That doesn’t mean you should just give up if you are already near retirement age but have not yet begun saving. Make an effort now to start saving, and you will be surprised at what a difference taking even small steps can take.Continue reading
Most people anxiously await the day when they can stop punching a timeclock and start spending time enjoying the better things in life. That idea is nothing more than a pipe dream for many seniors, who are far short the amount they need to enjoy a comfortable retirement. Why are so many people coming up short, and what can be done about it? Below is some important information about what is driving this epidemic.
1/3 Have no Savings
A recent survey revealed that one in three Americans have nothing whatsoever set aside for their retirement. That same poll showed that the majority of those who do save are far behind where they should be. A number of reasons were given for these deficits, with some of the more common ones being:
- Having too much monthly credit card or loan debt that prohibits them from saving.
- A sense of urgency over paying off student loans or saving for their children’s college accounts.
- Procrastination or a lack of desire to start saving.
- A plan to begin saving more money later in life rather than small amounts at an earlier age.
Hoping to Work Longer
Many people do not save money because they hope to either delay their retirement or work at least part time afterwards. Those in this category often find that their plans do not quite go as anticipated. Almost half of all retirees claim they were forced to retire earlier than they had hoped. Around 37 percent of them stated that health issues were to blame, while another 21 percent cited employer-related issues.
Reduced Emphasis on Savings
Financial experts advise having at least 70% of one’s annual income set aside in savings prior to retirement. The problem is that the number of people who were actively saving has continued to decline since the 1970s. The issue is so profound that the Federal Reserve reports that almost half of all Americans could not come up with a mere $400 if forced to do so because of an emergency. One reason people may save less these days has to do with reduced income that leaves many families with little or no money left over to put back.
Rising Cost of Living
Even those who thought they were saving enough could come up short due to the ever-increasing cost of living in many areas. In fact, many economists believe that seniors in many areas do not have enough money in savings to sustain their current lifestyle, let alone fund their retirement dreams. Retirees in Alaska, Hawaii, and South Carolina tend to fare better than those in other areas of the country, particularly residents of Massachusetts, North Dakota, New Jersey, and Minnesota.
There are plenty of reasons why folks who are at or near retirement age do not have enough money in savings. For many, recognizing the reasons for their deficiencies is the first step toward overcoming those obstacles and developing a savings plan that will allow them to at least have a little bit of cash put back.Continue reading