Skip to comments.4 Pension Myths That Keep Us From Making Badly Needed Reforms
Posted on 02/24/2014 2:18:23 PM PST by ThethoughtsofGreg
As 2014 brings in new struggles for cities and states to pay for employee legacy costs while still funding the essential functions of government, policymakers on both sides of the aisle are reconsidering how to provide a secure retirement for state and municipal employees in a responsible manner.
Reports estimate total unfunded pension liabilities exceed $4 trillion across the 50 states, and Detroits municipal bankruptcy, along with dozens more over the last half decade, are just the tip of the iceberg.
Many thoughtful criticisms have come from reform discussions, but also many attacks built on misconceptions, straw man arguments and blatant myths. Here are a few facts about reform:
Fact 1: Bipartisan pension reform is responsible and achievable...
(Excerpt) Read more at americanlegislator.org ...
People like defined benefit plans, because they like to be insulated from investment risk. The problem is that investment risk is REAL, and you can only insulate one group of people from it, by exposing another group of people to it. Usually, as with the PGBC, the second group -taxpayers- does know they are on the hook.
a defined contribution plan requires no actuarial recalculation of the enrolled employees all the time - with the number, salaries, and “future benefits” (in defined benefit plans onl) to content with
what the employer needs to pay is pretty straight forward the salary-base (or the comming year’s budget for it) times the % of salary the employer has agreed will be contributed - period
that need does not change drastically just because of new hires, early retirements or many other things
defined contribution plans usually do not have special rules, like many defined benefit plans, that add more “benefits” for extra last year over time, sick days and vacation days that were not taken before retirment, and many other things that cause need for larger than expected last year additional contributions to cover the “defined benefit”, including all the last minute addtions to it