America’s state-run retirement systems are in trouble — about $1 trillion worth of trouble.

In 2013, states had a $968 billion shortfall — up $54 billion from the prior year — between the pension benefits that were promised to employees and what was actually saved to make those payments, according to a recent report by Pew Charitable Trusts. The gap surpasses $1 trillion when shortfalls in local pension systems are included, the report says.

“The public pension system is a ticking time bomb,” says Chad Parks, CEO of San Francisco-based Ubiquity Retirement + Services.

The shockwave running through state pension systems is similar to what occurred in the private sector in the last decade, says Security Benefit President Doug Wolff, who’s based in Topeka, Kan. Most states have reduced pension benefits and some are eliminating them for new employees, he says.

That’s created an environment where voluntary coverage and supplemental income — via 401(k), IRA, 403(b), 457 — have become essential to ensure that individuals meet their retirement goals, Wolff says. In turn, he says, retirement advisers’ expertise is more important now than ever.

Advisers should have flexible products and strategies that can change depending on how far into their career an employee is, Wolff says. Those who are growing their business are adding services beyond investment-only advice, he says. “The successful folks are expanding into product planning and retirement solution planning.”

As a business owner, Parks sees both sides of the issue. Defined benefit plans can be bad for business, he says, but Parks is an advocate for pensions due to the “unintended consequences” of defined contribution plans. A 401(k) was meant to augment a pension plan, not replace it, he says. Today, individuals must manage their own financial future, which is a mistake, Parks says.

That future isn’t looking so great — pensions are going away, personal savings are lacking and a significant percentage of people assume Social Security will be bankrupt when they retire. Nearly one-quarter of Americans expect no Social Security benefits, according to a survey by Bankrate.com, which found in a separate survey that three-fourths of employees don’t have enough savings to cover six months of expenses.

Younger workers have realistic expectations

It’s not all bad news, though. One benefit of America’s retirement plight is increased awareness among employees, Wolff says. Those just entering the workforce have a better understanding of how much health insurance costs and what the future holds. “They don’t have a fantasized idea about what Social Security will do for them,” he says.

That makes for employees who are more receptive to education, especially Generation X and millennials, who rank the importance of retirement much higher than previous generations, Wolff says. “They’re willing listeners,” he says.

Still, saving for retirement isn’t easy when an individual has to do it on their own, Wolff says. And while pensions will exist in the future — more so in the public sector than the private sector — the need for supplemental retirement income will continue to grow, he says.

America needs to redefine what retirement means — turning 65, collecting a pension and enjoying the golden years isn’t realistic anymore, Parks says. Unfortunately, we’re stuck in the past, and the retirement system has yet to respond to the current situation, he says. “It’s a human behavior problem,” Parks says.

Discussing retirement on an employee’s first day is the key to success, says Tim Slavin, senior vice president of defined contribution at Broadridge Financial Solutions. “Establishing good retirement savings habits … place individuals in a solid position to capitalize on the power of compounding for potentially a 40-plus year period,” he says.

Advisers are crucial to that success. “Advisers who are at the top of their game feel it’s incumbent upon them to have participants focus on their retirement income replacement,” Slavin says. “But this only works if the plan sponsor feels he/she has some responsibility in helping their employees focus on retirement outcomes.” 

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