Posted on 01/27/2008 5:55:03 AM PST by Muleteam1
A big part of the problem is that retirees can select an annuity with annual cost of living increases, something quite uncommon in private company retirement plans.
Great deal for the retirees. Unlimited exposure for the managers of the pension fund.
I am not sure what you mean by getting rid of the open checkbook in favor of a defined benefit plan. Do you mean the organization is switching from defined benefit to defined contribution? The open checkbook problem is with the defined benefit plans.
It is not difficult to calculate the present value of a defined benefit at retirement. You need a mortality table and interest rate. The actual value can vary. If your family has long life, defined benefit provides a huge windfall.
It depends on the cost of living adjustment. A full cost of living adjustment is very expensive to purchase in the private sector. A limited adjustment such as limited to 3% reduces the periodic annuity payments by a modest amount. I am not sure about the cost of living adjustments in the Texas plan. The website is not clear about the benefits.
At my company, 95% of the employees take a lump sum value retirement amount rather than a fixed annuity.
A fixed monthly sum forever sounds great until you have a Jimmy Carter come along and turn it into peanuts.
Private sector plans do not have the taxpayer guarantee so it seems that your colleagues are rational. The public plans are being bailed out by taxpayer subsidies.
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