PLANSPONSOR - June/July 2020 - 10

UPFRONT
COVID-19 Strikes Guaranteed Income
WITH universal basic income being discussed by economists and
policy experts, we decided to check the status of three traditional
guaranteed income sources since the pandemic took hold.
For state- and local-government pension plans, the average
funding ratio for the fiscal year ended this June 30 is at the lowest
level so far this century.
Social Security funds, under current projections, will be
drawn down in 2035 to the extent that income will cover only about
Public Defined Benefit
Funding Drops
Social Security
Funding Shrinks
80% of benefits due. This is because unemployment has led to
a considerable drop in payroll tax revenue, plus unemployment
benefits are exempt from payroll tax.
As to corporate defined benefit (DB) plans, underfunding
worsened by 81% from the end of last year to the beginning of
March, due to a decrease in the benchmark corporate bond interest
rates used to value pension liabilities. Funded status decline was
partially offset by strong investment gains in April. -PS
Private Defined Benefit
Underfunding Jumps
$619b
2000
100%
2020
70%
Source: Center for Retirement Research
2020
100%
2035
80%
$329b
Dec 2019
Source: Morgan Stanley
Mar 2020
Retirement Timing: Could It Be Now?
T
he effects of COVID-19 on employees'
finances have caused many
nearing age 65 to question whether
they should rethink their timing to retire.
For some, that could mean the time is now.
Kalimah White, senior trust adviser
and vice president at TD Wealth, says she
tried to get her mother to retire because
of her possible exposure to COVID-19.
" My mother was worried about retiring,
but I worked to help her realize she had
sufficient funds and could do it, " she says.
" Retirement isn't as scary when you are
forced to face it. "
Many people's current simpler lifestyle
is showing them they can live with
less, and even live well. " In the last few
months, people haven't been going to the
theater or taking a cruise. However, this
shows people they can cut back if they need
10 PLANSPONSOR.COM June - July 2020
to, " says Anna Rappaport, a fellow of the
Society of Actuaries (SOA). " Some people
will be able to afford to retire in their
current lifestyle, and some employees will
be willing to cut expenses and downsize. "
Further, they likely have more resilience,
flexibility and adaptability than
they give themselves credit for, says Shane
Bartling, a retirement consultant at Willis
Towers Watson. " It's been a fact that a large
number of retirements have been affected
by outside events such as the COVID-19
pandemic, occurring at not an ideal time.
In stats I've seen, due to these events,
retirement happens several years earlier
than people originally contemplated and
forces them to adapt, " he says.
The Society of Actuaries' 10th biannual
Risks and Process of Retirement
Survey found that 76% of retirees surveyed
are financially as well off or better off than
they expected to be. Pre-retirees are more
apt to expect their savings or an employer
retirement plan to be a major source of
income (37%) than retirees report these
vehicles actually are (13%). Meanwhile,
Social Security turns out to be a more
important source of income for retirees
(64%) than pre-retirees expect (50%).
Bartling says Willis Towers Watson
performed some analyses and found that
the effect of the market drop in March
had less impact than expected on retirement
timing. " Many people I spoke with
initially said this will add four or five
years to the time [when] they will be able
to retire, but, in the analysis, few had an
impact [of] more than 12 to 18 months,
and, for the vast majority, the impact on
retirement timing was less than a year. "
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