“No Man’s life liberty or property is safe while the legislature is in session”.

- attributed to NY State Judge Gideon Tucker

Tuesday, July 13, 2010

State Pensions Go "Hybrid?" It's Way Overdue

This past weekend's Wall Street Journal featured an article entitled States Shift to Hybrid Pensions.

Really? It's long, long overdue. Private sector employers moved to defined contribution plans decades ago. The very concept of defined benefit, with its outsize, unlimited risk to the provider, is a joke nowadays. Think maximal counterparty risk.

Think I'm kidding or wrong? Just ask long-retired steel or airline workers. They fought their employers tooth and nail while active, then expected defined benefit promises to come true, after having worked so hard to cripple their employers' ability to operate profitably far into the future.

Now we learn that state and local workers may have to rejoin the real world. Great. It's about time.

The amazing thing, though, one learns from the Journal piece, is how many states will continue to allow some form of defined benefit plan, including, in some cases, an absolute defined benefit.

Other states are more sanguine and are acknowledging the basic unaffordability of defined benefit plans for state and local government workers.

Still, one reads this howler,

"Some workers aren't enthralled. "It's less benefit overall because of the variability of that 401(K) component," said Doug Pratt, director of communications for the Michigan Education Association, a union representing 130,000 school employees.

The reduced benefits mean "we're going to lose some good people" who will find the benefits package less attractive, he said."

Yeah, right! That'll be the day!

Just where do all those "good people" plan to work instead?

As good as Chris Christie, New Jersey's new governor, is on this topic, he's still not tough enough. I want to see a governor and the legislature simply repudiate the unwise and unaffordable defined benefit plans, challenge the unions affected to sue and push the state into Chapter 7, where it can reorganize, restructure and negotiate obligations, and force these people into defined contribution plans, or nothing.

That's reality and the longer we delay recognizing this fairy tale of municipal worker defined benefit plans, the worse off we, and they, will all be.

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