Ann Arbor may change pension plans and retiree health benefits to cut city expenses
New nonunion employees hired to work for the city of Ann Arbor soon might have to clock twice as many years of service in order to collect pensions from the city.
They also could see changes in their retiree health care benefits under a proposal approved in concept only by the Ann Arbor City Council.
Council members voted unanimously Monday night to direct the city's administration to come back at a future meeting with ordinance amendments to increase the pension vesting period from five to 10 years for nonunion employees hired after July 1.
Council members acknowledged the city's ongoing budget woes are at least in part due to increasing costs of city-provided retiree health care and pensions, and the changes being considered would be a way to cut costs.
The changes could apply when Ann Arbor's new city administrator is hired. The city is searching for a new city administrator to replace Roger Fraser, who resigned in April.
Council Member Christopher Taylor, left, brought forward a resolution Monday night that seeks to address retiree pension and health care costs. Council Member Stephen Kunselman, right, had questions about the proposal.
Ryan J. Stanton | AnnArbor.com
"As folks on council and the public know, the city of Ann Arbor's exposure with respect to retiree health care is material and this proposal would begin the effort to remediate that concern," Taylor said. "The transition contemplated by this resolution would reform pension vesting and retiree health care funding and have potential and real substantial savings to the taxpayer."
The directive also asks for ordinance amendments to increase the time period used to determine an employee's final average compensation, a figure used in pension calculations based on the employee's highest-paid three consecutive years of service within the last 10 years. The council is seeking to change that to five consecutive years.
In addition to pension changes, the council is asking the city's administration to come back with ordinance amendments to replace city-provided health care benefits for retirees with a so-called "access-only style plan." The new plan would apply to nonunion employees hired after July 1, 2011, and would be another way for the city to cut costs.
"The nature of an access-only style plan is that employees would have the ability to utilize savings that either the city sets aside or they put aside to purchase retiree health care from the plan that the city has active at that time," said CFO Tom Crawford, interim city administrator.
"In general, if you think about an individual being able to go out and buy health insurance now — let's say that's $1,000 a month — you could imagine that when it's part of a larger group, that cost is less," Crawford said. "What this is permitting or suggesting is that retirees be able to buy into the city's level of coverage at their option."
Crawford said potential cost savings aren't yet estimated, but it's likely to be five to seven years before there would be any significant savings.
Council members are hopeful the city can negotiate similar pension and retiree benefit changes through collective bargaining agreements with the city's unionized work force.
City officials say the number of city retirees receiving pensions and health care benefits is now greater than the number of active employees and increasing. The number of city employees in Ann Arbor is slated to drop from 736 to 706 by July 1.
Mayor John Hieftje said some might wonder why the city didn't take steps to make changes five years ago, but he said the city hasn't been in a hiring mode.
Crawford acknowledged it used to require 10 years of service for vesting but that was changed to five under former administrator Neil Berlin who served from 1995 to 2001. He said the proposed changes would restore the previous level.
Hieftje said many people are mistakenly under the impression that Berlin left the city taking advantage of an overly generous pension plan he helped craft, but the fact is he paid $140,000 in order to receive a $26,000 a year pension, so it was almost six years before he even realized any benefit.
Ryan J. Stanton covers government and politics for AnnArbor.com. Reach him at ryanstanton@annarbor.com or 734-623-2529. You also can follow him on Twitter or subscribe to AnnArbor.com's e-mail newsletters.
Comments
aareader
Wed, Jun 8, 2011 : 2:09 p.m.
Instead of "the era of pensions is over" is interesting. Perhaps these folks that want this elimination would share what their game plan is for retirement. If you state 401K I will just smile. I am glad you have the knowledge to make great decisions in the market, bonds, treasuries, and other "surefire investments". .... or are all of you just millionaires? Pensions are the best safety net for the vast majority of working people and their dependents. The argument should be how best to put together a pension system that is non-profit, sustainable, and requires a fair pay in / payout.
1bit
Tue, Jun 7, 2011 : 11:40 p.m.
Vesting at 10 years - fine. Unlimited healthcare benefits? Probably very unwise. The end of defined benefit plans? Not so fast my friend. As Rob Pollard notes above, there may be better approaches. Sure, a defined contribution plan may be less expensive. BUT that assumes two things: First, that the person is actually saving enough money and, secondly (or as a corollary) that the person will have the savvy to save even more when the yield on their current investments drop. In most cases, both of those assumptions will turn out to be false. Why? Because people tend to eat their nuts now rather than save them for the winter. And many people assume the safety net of Social Security will always be there. Unmanaged or undermanaged defined contribution plans are a ticking time bomb. What is going to happen when people do not save enough for their retirement? And Social Security benefits dwindle? And Medicare is "reformed" into nonexistence? And as we live longer? We are going to have an army of indigent elderly panhandling to pay for their medicines, or heart surgery, or rent. I'm not a huge fan of defined benefit plans as they exist because they have turned into a pyramid scheme of sorts, but defined contribution plans are no panacea either.
YpsiLivin
Wed, Jun 8, 2011 : 3:14 a.m.
Exactly. More than 1/3 of working adult Americans between the ages of 18-64 have no retirement savings at all. 1/4 of Americans aged 46-64 have no retirement savings, and 22% of people aged 65 and older have no retirement savings, and they're already retired. There are several significant problems with defined contribution accounts, not the least of which is that they leave their owners short of retirement funds. One estimate indicates that today, a retired 65-year-old couple will need nearly $200,000 to pay for out-of-pocket medical expenses. And that figure doesn't take into account the cost of long-term care that may be needed. Defined-contribution money is untaxed, which doesn't always work to the account holder's advantage in retirement, and can actually represent a substantial tax liability. IRS regulations impose narrow limits on the types of investments available to defined contribution plans, which can make it difficult to mitigate risk within a portfolio. The account holder can make ineligible (i.e. non-retirement) withdrawals relatively easily. Tax penalties attempt to discourage that, but once the money is out, it's gone. Most people don't understand enough about financial planning to manage a checkbook, let alone their own retirement investments. Further, self-management of money in retirement can leave some vulnerable people open to large-scale fraud. Before anyone decides that a defined contribution plan is the superior solution to the question of how to pay for retirement, they should do a little research on the anticipated costs of healthcare, and the potential disadvantages of self-managed retirement savings. The picture isn't very pretty. <a href="http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/684/ctl/ReadCustom%20Default/Default.aspx" rel='nofollow'>http://www.harrisinteractive.com/NewsRoom/HarrisPolls/tabid/447/mid/1508/articleId/684/ctl/ReadCustom%20Default/Default.aspx</a> <a href="http://money.usnews.com/money/blogs/planning-to-retire/2010/03/12/estimating-retirement-medical-expenses" rel='nofollow'>http://money.usnews.com/money/blogs/planning-to-retire/2010/03/12/estimating-retirement-medical-expenses</a>
macjont
Tue, Jun 7, 2011 : 8:17 p.m.
Missing from this discussion is any insight into the thinking that went into the original decision by the public sector to implement defined pension plans and plans for retirees' health care benefits. I assume that those who decided to implement these plans felt they were necessary to permit the public sector to attract the kind of employees believed necessary to provide the kind of services the public would deem acceptable. It was recognized that the public sector had to compete with the private sector to attract employees with the qualifications necessary to satisfy the public. The public sector could not compete with pay alone, so the fringe benefits of retirement pensions and health care became the tools for attraction. Now what has changed is an economic downturn that has put the private sector at a competitive disadvantage. What we should not overlook is that this downturn, while currently very painful, may be temporary and that when the private sector economy revives and begins to thrive, the public sector again will face a potential competitive disadvantage for qualified employees. If this occurs, will we be willing to compete by raising public sector salaries and wages sufficiently to offset the loss of the defined retirement plans we have discarded? If so, or we are willing to accept inferior services that may be rendered by inferior employees, then current thinking on the question of defined pension plans and health care benefits for retired public employees makes sense. If not ……? (Note: I am retired and have no defined pension plan. I am, however, a tax payer and a consumer of government services.)
braggslaw
Tue, Jun 7, 2011 : 9 p.m.
I have no concern that the quality of public employees will fall... the quality is so low to begin with. People will not exit the public sector to the private sector because the pressure is completely different along with the accountability.. The smaller govt. the better.
AA
Tue, Jun 7, 2011 : 7:25 p.m.
The era of pensions is over. Done. No more.
Rob Pollard
Tue, Jun 7, 2011 : 5:39 p.m.
Can't we be smarter than some of these comments which essentially say "Pension, bad ; 401k, good"? Pensions have the benefit of having professional manage the money but the negative of the "defined benefit" being overly generous (for various reason). 401ks have the benefit of being easily portable and allowing the worker to be in control with the negative that many people have no expertise in managing money and through bad decisions, timing, and/or luck, can end up with an amount woefully insufficient for retirement. Ann Arbor (and Michigan) should look into a plan like Utah's, which gives employees a choice: a hybrid pension plan or a 401k plan. For those who want to be completely in control, they can choose the 401k; for those who don't (e.g., they don't know a stock from a bond), they can choose the hybrid. Either way, Utah contributes 10% of salary. For 401k folks, they get that money and it's theirs to grow (or shrink) - that's it. For pension folks, the state pension fund manager keeps it to manage for the entire pension fund group, but if the plan becomes too underfunded, b/c of investment losses or other problems, it's not the govt (e.g., state or city) that has to fill the shortfall, but pension employees - they will have to pay a percentage of their paycheck to help eliminate the shortfall. More details here, <a href="http://calpensions.com/2011/05/24/brown-seeks-hybrid-pension401k-reform-plan/" rel='nofollow'>http://calpensions.com/2011/05/24/brown-seeks-hybrid-pension401k-reform-plan/</a> In short, by giving people a choice and not going from one extreme (100% defined benefit) to another (100% defined contribution), we can save money and limit losses for the govt (i.e., taxpayers) while also provided a more reasonable chance workers will have a decent income in retirement. There are other states besides Utah: I just use them as an example, <a href="http://www.nasra.org/resources/NCSL_DC_Hybrid.pdf" rel='nofollow'>http://www.nasra.org/resources/NCSL_DC_Hybrid.pdf</a>
aareader
Wed, Jun 8, 2011 : 2:20 p.m.
I agree with you! You stated it much better than I.
Tony Livingston
Wed, Jun 8, 2011 : 2:54 a.m.
I don't have a problem with pensions. Just don't start giving them away to people still in their prime working years. No one should be getting pensions until they are at retirement age ----- 62 at least.
Rork Kuick
Tue, Jun 7, 2011 : 4:40 p.m.
The article fails to tell us how the pension amount is calculated (what percent of those top 3 or 5 years, or what is that formula - at least an example please) and how much the folks pay out-of-pocket for health care. I agree with the commenters who think this change is almost nothing. By the way these formulas where the top years partly determine pension - that's a bit like the teachers, right? And it's a reason to pay yourselves very little to begin with, but lots at the end. This discourages young people from entering, but maximizes your winnings if you are older. It makes for allot of gaming compared to 401K's. Besides end-loading, there's the buying years game.
Craig Lounsbury
Tue, Jun 7, 2011 : 3:48 p.m.
"....but the fact is he paid $140,000 in order to receive a $26,000 a year pension..." In other words he "bought" an 18.6% return on his "investment." A return that will go till he dies? Where do I sign up?
ToddGack
Tue, Jun 7, 2011 : 2:52 p.m.
Another great quote by the Mayor. "Hieftje said many people are mistakenly under the impression that Berlin left the city taking advantage of an overly generous pension plan he helped craft, but the fact is he paid $140,000 in order to receive a $26,000 a year pension, so it was almost six years before he even realized any benefit." John is trying to justify his role on City Council when Neil was in charge. Neil had to pay that money because he introduced a plan where city workers could buy four years of military time. It was strange that Neil so happened to have to have military time. So now Neil is collecting on his pension and realizing his great investment.
CincoDeMayo
Tue, Jun 7, 2011 : 5:51 p.m.
Thank you! I am getting really tired of the administration taking honest comments from here and then spinning them into something that seems okay, publicly through the pulpit of council meetings, or the media, proclaiming why it makes sense. It is NOT a mistaken notion. Berlin, Fraser, and others are just as much a part of the problem with their multiple and inflated pensions. Why are they somehow justified and your everyday union worker is not justified to even a portion? As far as healthcare goes - it's necessary and will have to be paid for one way or another. The problem to address is in the healthcare system itself.
Ponycar
Tue, Jun 7, 2011 : 2:37 p.m.
I'm hoping that any changes made to the non-union employee plans will either be applied to the union employees as soon as possible or, at the very least, in the next contract negotiations. Also, I agree with others here that defined benefit plans should be discontinued. Give all new employees a 403b with a not overly-generous match and let them save like the rest of us. I would also encourage the City to look into HSA's to control medical costs, if they're still viable under the Obama health reforms. I love mine!
Mike
Tue, Jun 7, 2011 : 1:46 p.m.
The new employees always get thrown under the bus like the auto industry did. The employees feeding from the public trough still get to walk away with the golden goose intact; theirein lies the problem. Most of us will see our social security age being bumped up while they are working on their second pension. I guess they'll need us to still be working when were seventy to pay for their "service" to us for twenty years. By the way how is the service at most government run institutions?
Gorc
Tue, Jun 7, 2011 : 10:49 p.m.
Your right...the government does not provide any services that are first class. Look at pubic housing. Look at social security. Look at education system. etc.
Tony Livingston
Tue, Jun 7, 2011 : 1:46 p.m.
Vesting at 10 years instead of 5. Is that all! That doesn't even come close to making changes. The problem is the ability to begin collecting retirement benefits at the age of 50 or even younger in some areas. Retirement should be at least age 62. People leave the city by the dozens, take pension and benefits and secure employment elsewhere. We are paying for this decade long "pay to not work" plan. How many people out there can collect pensions and health insurance at age 50? I know I have to wait until 62.
YpsiLivin
Tue, Jun 7, 2011 : 9:32 p.m.
If a worker draws benefits before the plan's stated "retirement age," or chooses to provide a survivor's benefit, his/her monthly pension checks are reduced. In other words, pension benefits are defined, (hence the name) and every variation from the plan changes the benefit accordingly. Healthcare costs are notoriously hard to plan for. In theory, investment gains could offset the rise in healthcare costs, but risk and reward are proportional. Minimizing the risk of loss is essential because municipal pensions aren't insured, so these funds make specific "safe" investments, which limit investment returns. Whenever the cost of healthcare rises faster than planned, or when the fund investments tank, the city must increase the contributions for its existing workers to offset the shortfall. As for collecting pension benefits, you have it backwards. The pensioner who begins collecting cash benefits at age 55 receives a significantly smaller monthly payment than s/he would receive if s/he started collecting at age 65; the overall cost to the pension fund for his/her cash benefit is the same, unless the person lives to a very old age. You appear to have concluded that collecting pension benefits somehow costs the city money, and worse, that collecting benefits "early" costs more money, when quite the opposite is true. Retirement ends the city's annual compensation obligation, including the payments the city makes into the pension fund on a worker's behalf. It's the payments INTO the retirement fund that are costing the city money, not the benefits that are distributed to the retirees FROM the fund. As for the cost of healthcare, fortunately the Michigan Supreme Court has determined that pension-paid healthcare benefits are neither contractual obligations nor accrued financial benefits. Pension plans in Michigan can change them as needed, or walk away from them altogether.
Tony Livingston
Tue, Jun 7, 2011 : 7:01 p.m.
@ypsilivin......People can either quit and work elsewhere or they can continue working until age 62. Either way, they should only be able to begin collecting pension and insurance benefits at age 62. Retirement pay is designed for the years when one can no longer work. This system is bankrupting the city at the taxpayers' expense. There is no reason to collect pension until retirement age.
YpsiLivin
Tue, Jun 7, 2011 : 4:11 p.m.
So, just out of curiosity, how much more do you think the pension plan operator will be paying in benefits if the retiree in question works an additional 10-12 years? That retiree will provide 10-12 more years of service, collect 10-12 more years of compensation, and make 10-12 more years of contributions, all of which affect the final average compensation calculation. (You DO understand that those who collect an "early" retirement collect a reduced monthly benefit, right?) So are you suggesting that one retire at 50 from the public sector and go back to work elsewhere for 15 years while waiting to collect on a public pension? If that's the case, you should note that unemployment among women and men between the ages of 55-64 in 2007 was 2.7% and 2.8% respectively. Currently (as of April '11, anyway) the unemployment rate among women and men in the same age bracket was 5.1% and 7% respectively, and peaked in that period at 7.1% and 8.9% respectively. 15 years is a long time to wait for a pension when you can't find a job, don't you think?
Mike
Tue, Jun 7, 2011 : 1:48 p.m.
Retirement age should be the same age as social security age. And ex-governemnt employees should only be allowed to collect one pension period at that prescribed age.
Craig Lounsbury
Tue, Jun 7, 2011 : 12:45 p.m.
No matter how one/we approach the notion of "retirement" we are in uncharted territory IMO. I am 59 years old and when I was born my life expectancy was around 66.5 years. My dad, a generation earlier, had a life expectancy of around 56-57 years at birth. People didn't have much of a retirement years ago. They died "on the job". So this notion of funding a 20-30 year "retirement" I would suggest is a late 20th century phenomenon. In nature when you can no longer fend for yourself you die. We need better answers than that one.
Craig Lounsbury
Tue, Jun 7, 2011 : 6:11 p.m.
Your point on infant mortality is well taken. Factoring that in a 20 year old in 1900 had an average span of 62.19 while a 20 year old in 2000 had an average of 75.7. And now we find folks routinely living in to their late 70's to late 80's. So infant mortality is part of the equation but a much bigger part is modern medicine and its rather broad availibility.
andys
Tue, Jun 7, 2011 : 5:51 p.m.
Isn't much of the gains in life expectancy due to reductions in infant mortality. Or more to the point, if a person reached adulthood in 1900, or reached adulthood in 2000, are the changes in life expectancy as dramatic? Don't know, just asking.
Ryan J. Stanton
Tue, Jun 7, 2011 : 12:35 p.m.
For the record, when I wrote a story about employee benefits a few months ago, the records I got showed the city with 141 nonunion employees out of 700-plus total employees.
Ryan J. Stanton
Tue, Jun 7, 2011 : 2:24 p.m.
There aren't 700 union employees. I said 700-plus total employees (union and nonunion).
Will Warner
Tue, Jun 7, 2011 : 12:50 p.m.
141 non-union to 700 union employees. That ratio is not promising if the city can introduce sanity only into the relationship will non-union employees.
grye
Tue, Jun 7, 2011 : 12:31 p.m.
Wow, what a concept. The light bulb finally came on. This policy should applied to all city employees, union and non-union.
snoopdog
Tue, Jun 7, 2011 : 12:23 p.m.
A good start, now do it with the union employees and acquire true cost savings ! Good Day
Gorc
Tue, Jun 7, 2011 : 11:26 a.m.
The city must offer defined contribution plans, instead of pensions, to ALL new city workers. There are more retired workers than current works and the retiree benefit costs are greater than current salaries for the city. This forever perpetual expense must be phased out permanently.
Gorc
Tue, Jun 7, 2011 : 10:36 p.m.
YpsiLivin....I understand your point, but thinking long term I want to transfer any future retirement responsibility to the worker. If the employees had a 401(k) plan today, the city's fiscal responsibility would any matching dollars into the workers defined contribution plan. Long term this would be more cost beneficial. The hard part is figuring out good options to phase out the current pension system while fulling current obligations to retires receiving payments and folks who already paid into the system, but are not yet retired. It will be far less expense, in the long term, to pay matching funds today compared to future pension payments.
Basic Bob
Tue, Jun 7, 2011 : 1:50 p.m.
@YpsiLivin, Cities in Michigan can't declare bankruptcy without permission from the state. That is the whole point of Emergency Financial Management, to avoid bankruptcy. As population stabilizes or decreases, the Ponzi schemes collapse because more people have retired and are collecting benefits than current employees can support. At that point, there are 3 ugly options: take from the taxpayers, take from the employees, or take from the retirees.
YpsiLivin
Tue, Jun 7, 2011 : 1:11 p.m.
Gorc, Don't assume that pension contributions made for/by Employee A are actually set aside and used specifically for that person. All pension contributions from every employee go into a general pension fund. Money taken in today may be used to pay for current OR future retirees. Pension funds are also invested, and can gain, retain or lose value. Recently, we had several years of investment losses. While many funds are now seeing investment gains, the recent gains have not as yet balanced out significant investment losses in many public pension funds. Further, payouts aren't tied to fund performance, so while the pensioner gets no increased payout when the fund is flush, s/he gets no reduced payout when the fund is low. Under these conditions, the pension system works only when it is perpetuated. It is, in effect, a Ponzi scheme because it relies on current contributions to pay current obligations, but switching new employees to a 401(k) plan is not a silver bullet. In fact, that approach will create parallel retirement obligations on the City's part. The City must pay the contributions that would have been made by new participants until the last pensioner is paid out. Buyouts? The per-person price tag is frighteningly high because pension obligations often (but not always) include health care benefits. The middle (?) of a deep recession a poor time to think about getting rid of a pension plan; the exit costs are far too high. Pension reform is best conducted when the economy is exceptionally healthy. If it makes you feel better, cities in Michigan can declare bankruptcy and have their pension obligations discharged to the wind, leaving their pensioners with nothing at all. (Some pensioners don't even pay Social Security precisely because they had a pension plan.) And no, the Pension Benefit Guaranty Corporation won't help. They only insure private pensions. Municipal pensions are not insured, period.
Will Warner
Tue, Jun 7, 2011 : 11:20 a.m.
The age of the pension is over. It's part of an antiquated, paternalistic employment paradigm that assumes employers are one class of people—competent, disciplined, efficacious, planners and managers—and employees another: dependent, undisciplined, unfortunate waifs, requiring protection from forces they can't understand or control. Providing for your retirement is too important to leave up to your employers. When the time comes, you might find that they didn't take it as seriously as you would have. So stop thinking of your employer as your daddy. Own your life.
Will Warner
Wed, Jun 8, 2011 : 5:48 p.m.
Ghost, I voted for your comment in which you said that we agree—the least I could do. Ghost and 1bit: You guys are great policy wonks. Carry on. My point is somewhat different. Pensions are promises that can be crushing and possibly impossible to keep, and therefore should not be made or relied upon. People should not permit themselves to be wards of their employers. The idea behind pensions is that people who are smarter than you, and more successful than you, will help you do what you are incapable of doing for yourself (see "paternalistic"). But when their grand schemes to provide for your retirement fail (investments fall in value as well as rise), they have to pay you using money from those coming behind you. And because the cohort coming behind you is smaller, this is unsustainable. People need to abandon the belief that they can be offered a certain future. It is just not feasible to make promises about the future. As for "forcing people to save more", well, that is also paternalistic. Choosing to live for today is not irrational; it's a choice with upsides and downsides like any other. Nobody will starve on social security, and for those who did not provide more for themselves, a retirement of non-starvation is what they will get.
1bit
Wed, Jun 8, 2011 : 2:54 p.m.
Ghost, while I agree with your points, I think you are missing the complete picture as I outlined below. The reason that defined contribution plans are less "expensive" is because they tend to undersave. The example you gave is not quite accurate because when the market goes down, the defined benefit plan is required to put more money in (which creates the shortfall). A defined contribution plan does not force this necessary, but counterintuitive behavior (i.e. when times are tough and your income is falling, it is hard to think that you need to save twice as much as you were before). The real "expense" comes when the person actually retires. Because they won't have enough money to retire upon, the cost to society will be even greater. Defined contribution plans are not the complete solution and I think an apt analogy would be "privatization" of Social Security.
Edward R Murrow's Ghost
Wed, Jun 8, 2011 : 1:45 p.m.
The expense, 1bit, is not in whether or not people will save enough. The expense is in the transition: 1) Current contributions to the system fund, to some degree, pensions of those already retired. What will happen to those people's pensions? 2) What to do about people who not yet retired? Do all of them lose their pensions? Some of them? Who? And, whatever the answer, it will cost vast sums of money to either maintain the system for those already in it, or to buy them out, or (most likely) a combination of both--long term employees will remain in the pension system, while shorter term employees will receive a lump sum payment reflective of their years in the system that they can invest in a 401k. The above is the likely outcome as public employees transition from defined benefit to defined contribution systems (and, BTW, the latter is a forced savings--a huge tax hit if money is withdrawn before retirement), and this will be at a huge cost. And, in talking about "trust", Jake misses the point. Both DC and DB plans depend on investment income in order to provide income for retirees. If, in a DB plan, the market goes down, payouts remain the same, causing shortfalls in the DB's funds. This leads to a vicious circle: To maintain required payouts, the DB plan must sell off more stock, etc.... than it had planned on, thereby reducing the amount of revenue expected, thereby creating shortfalls . . . and the cycle continues . . . hence the problem with most pension funds today. In a DC plan, dividend revenue declines, but no organization--no company, no state, not city, no school district--is on the hook for the difference. DC is the way of the future for all pensions--public and private. The devil is in the details. How does one transition from DB to DC? Good Night and Good Luck
1bit
Wed, Jun 8, 2011 : 1:35 a.m.
Therein lies the rub - most people do not save enough in defined contribution plans. Defined benefit plans are not necessarily "expensive", they force one to actually save enough to retire upon (in principle). I posted a rant below.
Edward R Murrow's Ghost
Tue, Jun 7, 2011 : 7:45 p.m.
@Jake: No. There is a huge difference. 401(k)s and other defined contribution plans do not guarantee a payoff. They are investments that, if made wisely, will do well, and if not . . . A defined benefit plan guarantees . . . a defined benefit. Good Night and Good Luck
Jake C
Tue, Jun 7, 2011 : 5:27 p.m.
Does this way of thinking also apply to 401(k)and 403(b) retirement plans? How about any retirement money at all besides the cash you choose to hide under your mattress, or gold coins you bury in your backyard? It all comes down to trusting someone else not to default on their obligation they made to you when they hired your services. Whether it's the federal government, city government, a private business, a public corporation, a Wall Street hedge fund or just a savings account at the bank down the street, it's all about trust.
Edward R Murrow's Ghost
Tue, Jun 7, 2011 : 12:09 p.m.
The apocalypse must be upon us--We agree, WW!!! The problem is how does one transition from defined benefit to defined contribution. Under any scheme I have seen, the short-term costs ("short-term" meaning 10-20 years) are HUGE. Good Night and Good Luck
DDOT1962
Tue, Jun 7, 2011 : 11:19 a.m.
Wow. I'm always flabbergasted at the level of benefits public employees receive as active employees and as it extends into their retirement. I kick myself for not having gone the public service route years ago...
seldon
Tue, Jun 7, 2011 : 2:46 p.m.
That's the tradeoff for accepting lower pay, usually substantially lower than the private sector. That's why we can get competent people to work in the public sector: they're willing to take the lower pay now in exchange for benefits later.
Mike
Tue, Jun 7, 2011 : 1:49 p.m.
It didn't work so well for Greece...........
braggslaw
Tue, Jun 7, 2011 : 10:34 a.m.
About time. The solution was clear and inevitable.