On top of that, defined-benefit plans have a mutual-insurance component to them: shorter-lived workers subsidize longer-lived workers, helping to increase everybody’s standard of living.
The fact is that the states’ move to defined-contribution plans is a blatantly political one, born of Republican ideology conflating such plans with individual freedom and choice. For rich professionals who jump from job to job every few years, 401(k) plans do make a certain amount of sense. For public servants spending a lifetime in the police force or in elementary schools, by contrast, they emphatically don’t. As for the state pension plans, the only way that the state governments can help them make up their actuarial liabilities is if they pour more money into them. Not less.
For public servants spending a lifetime in the police force or in elementary schools, by contrast, they emphatically don’t.
I would have to agree ... who wouldnt want a guaranteed salary of 75% of your three highest year's income from the time you are eligible for retirement until you die. Retire as a teacher at 60 on more than most people make when they are working. Count me in! However, contrary to Teresa Ghilarducci rather ridiculous claim, replacing this with 401K's certainly is not a bad deal for taxpayers. As your article stated quite plainly: "coming up with a present value of future liabilities is much harder", so doing away with variable future liabilities certainly makes a lot more sense from an accounting perspective.
As for the state pension plans, the only way that the state governments can help them make up their actuarial liabilities is if they pour more money into them. Not less.
Ryan, you have unwillingly made an excellent case for switching from a defined benefit plan to a defined contribution plan. The states shortchanging pension coffers is a real issue but the politicians who cut the deals with the unions didnt care. Why would they, they only look from electoral cycle to electoral cycle. So when guys like Obama were in the Illinois State Legislature, they said, "sure well give you a great retirement, just be sure to contribute to us and come out vote in November" they knew God damn well they werent going to have to worry about actually paying for it. The Constitution in many states codifies the agreed upon benefits, so the money will come from somewhere ... not thier problem. Because when you rob Peter to pay Paul, you can be sure that Paul is going to come out and vote for you come November. But as last November showed, Paul is sick of it.
#1 Posted by Mike H, CJR on Tue 1 Mar 2011 at 09:16 PM
November showed Paul is sick of being under-employed / unemployed.
That's all.
Speaking of Paul and Pensions
http://krugman.blogs.nytimes.com/2011/03/01/americans-dont-hate-unions/
Paul doesn't have a problem with union benefits.
Republicans do. And , as I documented in an earlier discussion, they and wall street caused a lot of pension problems to begin with (gotta have dem tax cuts).
http://www.cjr.org/the_kicker/ryan_chittum_on_unions_apple_a.php
#2 Posted by Thimbles, CJR on Tue 1 Mar 2011 at 10:47 PM
Thanks for a great analysis, as usual. I haven't been reading the news closely since the confrontation in Wisconsin broke out, but what I feel like I'm seeing is a lot of talk about how the state government is broke and can't afford to pay union salaries. It seems to be the basic framework that reporters use to analyse an economic crisis -- blame the workers. Nevermind that the upper 10 percent got us in this mess in the first place. Why is the media looking only (or mostly) toward government benefit expenditures to figure out what went wrong in Wisconsin's budget? Governments have both earnings and expenditures. Isn't it possible that tax cuts and incentives played a role in the state's budget problems? If working people in Wisconsin lose their collective bargaining rights and benefits, all working people take a hit, because it will be that much more difficult for us to make similar demands in the future. The upper 10 percent, on the other hand, will get richer. How is it that journalists so consistently avoid this point? Aren't they working people too? I would like to see some investigative reporting to explain in clear terms to Americans the role that tax cuts and corporate incentives are playing in the depletion of their pensions, their benefits, and their collective bargaining rights. (Unless of course, I am wrong)
#3 Posted by Daniel, CJR on Thu 3 Mar 2011 at 11:04 AM
Good work, Felix. Sooner everyone understands that 401ks are a sop to bankers and brokers and a scam on everyone else--taxpayers included (who else will support the destitute in their dotage?)--the quicker we can get about the business of restoring the social contract. Give it 4, 5 generations, tops.
#4 Posted by edward ericson jr., CJR on Thu 3 Mar 2011 at 05:55 PM
Kevin Hall did a fine piece on State Pensions, with fancy graphics to accompany:
http://www.mcclatchydc.com/2011/03/06/109649/why-employee-pensions-arent-bankrupting.html
"Pension contributions from state and local employers aren't blowing up budgets. They amount to just 2.9 percent of state spending, on average, according to the National Association of State Retirement Administrators. The Center for Retirement Research at Boston College puts the figure a bit higher at 3.8 percent.
Though there's no direct comparison, state and local pension contributions approximate the burden shouldered by private companies. The nonpartisan Employee Benefit Research Institute estimates that retirement funding for private employers amounts to about 3.5 percent of employee compensation.
Nor are state and local government pension funds broke. They're underfunded, in large measure because — like the investments held in 401(k) plans by American private-sector employees — they sunk along with the entire stock market during the Great Recession of 2007-2009. And like 401(k) plans, the investments made by public-sector pension plans are increasingly on firmer footing as the rising tide on Wall Street lifts all boats.
Boston College researchers project that if the assets in state and local pension plans were frozen tomorrow and there was no more growth in investment returns, there'd still be enough money in most state plans to pay benefits for years to come.
"On average, with the assets on hand today, plans are able to pay annual benefits at their current level for another 13 years. This assumes, pessimistically, that plans make no future pension contributions and there is no growth in assets," said Jean-Pierre Aubry, a researcher specializing in state and local pensions for the nonpartisan Center for Retirement Research at Boston College."
#5 Posted by Thimbles, CJR on Sun 6 Mar 2011 at 11:15 AM