Wednesday, July 18, 2012

Growing backlash against public pensions, part 2

A day of reckoning is coming--

The growing backlash against public pensions |  " . . . Basically, the problem revolves around defined benefit retirement plans, known as pensions. They used to be necessary to entice workers to remain in place for an entire career — obviously not so today. Contributing a small portion of their wages, employees are guaranteed a percentage of their salaries for years of retirement. The benefit is often for life, and it can pay up to 60 percent or more of the highest salary earned during employment. Many of these plans include a sweet deal at a reduced rate for early retirement at age 52 or 55, and, medical benefits until age 65 when Medicare kicks in. It’s not unusual for public employees to retire early and draw benefits, then take another public sector job and start an additional retirement plan. When wages and benefits are combined, dollars per hour worked for public employees has surpassed that of the private sector for many years now. As soon as defined contribution plans were created, a la 401(k)s in the late 1970s, the private sector began to abandon defined benefit plans. By the 1980s, 60 percent of private sector employees remained on pension plans. Today it is only 10 percent — and falling. That’s not because private businesses are ‘greedy,’ but because it is financially prudent and a matter of survival. The holdouts are the unionized sectors such as the auto and airline industries — and even they are beginning to understand their tenuous situation. Contrast this with more than 90 percent of government workers still on pension plans today. Why? Because until recently they have not had to worry about being financially prudent. The U.S. government has a bigger unfunded liability for military and civil servant retirement benefits than it does for Social Security. And as we all know, Social Security is going broke. Disaster looms. It will be avoided only when the public sector is fully transitioned to private investment, and all have skin in the same game: The free market."

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