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Health Benefits and the Pension Plan Crisis

Public-sector retirees and those headed for retirement in cities across the United States are facing widening gaps between what their pension plans promised and what employers are willing and able to deliver. A lesser-known aspect of the pension-plan crisis is the potential loss of the health benefits associated with many retirement pensions. As Jason Hartman recommends, creating stable, alternative retirement income streams through real estate investing can be the key to surviving these pension shortfalls.

In many cities small and large, employers in both the private and public sectors have appealed to courts and local legislative bodies for help bridging the gap between the benefits promised to employees and those the employer can actually deliver. In California and Illinois, especially, some cities have declared bankruptcy, citing rising costs associated with pension plans.

Since most public sector employers are legally prohibited from changing the terms of their pension plans, they’ve resorted to other strategies to keep costs low, including requiring a larger employee contribution to the plan, reducing or eliminating cost of living adjustments, And, less publicized but equally damaging, the costs of health care benefits associated with retiree pensions have driven some state and local governments to cut these benefits by more than half, or attempt to eliminate them entirely.

Although rare in the private sector, lifetime health care benefits in retirement have been available to employees in many public sector jobs. This is a prized benefit for employees who can retire as early as 50 or 55, a decade or more before they reach Medicare eligibility at 65. But since retiree health benefits are not considered a “vested right,” and health care costs continue to rise, they can be vulnerable to manipulation in ways that pension plans themselves are not.

California has been at the forefront of many legislative actions associated with public sector pension plans, and in spring 2012, a Sacramento court upheld a move by the city of Stockton to cut retiree health costs as part of a bankruptcy filing. Although more court battles lie ahead, the Sacramento decision underscores the vulnerability of retirement income for public sector employees.

With the growing crisis in pension and health care benefits, public sector retires and those preparing for retirement need other, more stable sources of retirement income. The most solid of these is investing in rental property with a fixed-rate mortgage. Even with market fluctuations, real property is an asset with the potential for a long-term return. Jason Hartman’s investment strategies are designed to support those seeking a stable, independent income stream in retirement – one that doesn’t depend on vulnerable, employer-sponsored pension plans. (Top image: Flickr | aflcio2)

The Heroic Investing Team


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