Death by Pension
Folks, there is a crisis in America - it's called full funding of defined benefit plans, and it's going to kill us. Typically, you only see "defined benefit" plans in government jobs or in situations where unions are so strong (UAW is a good example) that ownership and management have no choice but to give in to their unceasing demands.
The notion of a defined benefit upon retirement, to the worker, is seemingly enticing. You work at a job for many, many, years and then you retire without having to worry about the market affecting your investments - your retirement benefit level (monthly check) is guaranteed (including inflation adjustments). Furthermore, some of these plans (such as the Hudson School District) don't even require the participants to invest any of their own earnings! What gig, if you can get it. The obvious problem is that there is no self direction, the plans ignore the market, and any shortfalls in plan assets must be made up with additional taxation (in the case of government employees, Wisconsin is a good example of this), or in the case of large private corporations (like GM) you can face financial disaster.
Two recent examples popped up, it's happening all over America and it may be coming to a state near you!
Illinois Budget Shortchanges Teacher Pensions
Financial Crisis, Felony Violations Rock San Diego
Bottom line - Retirement plans, whether they be for government employees or for private corporations, must be a defined contribution or, better yet, self-directed by the individual employee. Until and unless we focus on such long range thinking we are simply going to see much more of the type of examples linked above - and it will get worse.
bil danielson @ OnTheBorderline.net
The notion of a defined benefit upon retirement, to the worker, is seemingly enticing. You work at a job for many, many, years and then you retire without having to worry about the market affecting your investments - your retirement benefit level (monthly check) is guaranteed (including inflation adjustments). Furthermore, some of these plans (such as the Hudson School District) don't even require the participants to invest any of their own earnings! What gig, if you can get it. The obvious problem is that there is no self direction, the plans ignore the market, and any shortfalls in plan assets must be made up with additional taxation (in the case of government employees, Wisconsin is a good example of this), or in the case of large private corporations (like GM) you can face financial disaster.
Two recent examples popped up, it's happening all over America and it may be coming to a state near you!
Illinois Budget Shortchanges Teacher Pensions
Financial Crisis, Felony Violations Rock San Diego
Bottom line - Retirement plans, whether they be for government employees or for private corporations, must be a defined contribution or, better yet, self-directed by the individual employee. Until and unless we focus on such long range thinking we are simply going to see much more of the type of examples linked above - and it will get worse.
bil danielson @ OnTheBorderline.net
posted by Anonymous @ 8:19 AM
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