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April 29, 2010 By Mark Schulte Leave a Comment

Public Pension Backlash

I have been saying to my colleagues for the past couple of years that the backlash against public employee pensions was on the horizon. Recent newspaper articles and pension studies confirm that the storm is finally here. With many private employees seeing their retirement savings halved during the recession and their employer-sponsored retirement plans cut back, it was only a matter of time before “pension-envy” took over.

However, it seems that the recent press exposure of public pension finances and well-publicized instances of questionable benefit practices has obscured some of the most important questions regarding pension plans – public or private.

  • What is the purpose of a pension plan? Is the current plan serving its purpose or does it need to be adjusted to adapt to changing times?
  • Are current benefit levels in the plan “appropriate”? A “race to the bottom” of employee benefits doesn’t help anyone in the long-term, but I think that it is entirely fair to make targeted adjustments to pension plan benefits so that they are competitive, affordable, and meaningful.
  • How will benefits be financed? This is the question that has been making headlines recently due to the recession’s impact on pension plan trust funds. Stories of pension funds being 30% to 40% underfunded can rile people up, but they rarely capture the complexities of pension plan financing. Pension plans can be a very efficient way to provide meaningful benefits to large groups of employees, but the cost must be transparent and the funding can’t be perpetually deferred to future generations.

One of the most rational voices I have heard in this growing debate has been Gerard Miller at the website www.governing.com. He has many thoughtful articles about pension reform that try to bridge the gap between maintaining unaffordable public pensions and a total dismantling of the system.  I believe that the debate on public pension reform is just getting fired up and we can expect to see it displayed prominently in this year’s mid-term elections. It remains to be seen whether this topic can be discussed objectively or whether it will just devolve into an all-out battle between the “haves” and “have-nots”.

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Filed Under: Defined benefit plans, Public pensions, Public plans Tagged With: pension, pension plan, public pensions

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