As more governors try to force 401 (k) style pension plans on public employees, a group of pension experts say they aren’t the solution for workers who want a secure retirement.
“The real issue is why defined benefit plans make sense,” said Dean Baker, a co-director, of the Center for Economic and Policy Research.
“The crisis over (public pensions) has been invented and the pension system is performing well,” Baker says. “The public sector is getting by and they are not living high on the hog and are living comfortably on what they earned.”
Baker took part in a panel to discuss the effectiveness of defined benefit pension plans Thursday at the National Press club. The event was sponsored by the National Public Pension Coalition a non-profit organization that works to secure the financial futures of public employees.
Other panelists included: New York State Comptroller Thomas P. DiNapoli, North Carolina Treasurer Janet Cowell, and National Conference on Public Employee Retirement Systems Director Hank Kim.
About 80 percent of the cost of pensions is covered by public employee contributions and earnings from investments, with less than 20 percent paid for by taxpayers.
While the recession that began in December 2008 did have a negative effect on public pension assets, significant gains have been made since that time. Long term investments are expected to exceed returns.
Panelists agreed that private sector pension plans cost more and don’t provide workers with the retirement security they deserve.
“When you look at the 401 (k) style pension plans they aren’t reliable – just look at the marketplace in 2008,” said Thomas DiNapoli. “The individual is looking at paying higher fees and getting a lower rate of return.”
New York has one of the better performing pension systems in the country with its plan fully funded. The New York pension system pays an average of $19,150 annually to retirees.
DiNapoli made it clear that politicians just can’t think of short term costs, but must take a long-view about how 401(k) plans would affect the economy.
He says at a time when most people want more economic certainty, the 401 (k) plans would prove more expensive in the long term with state and local governments having to pay more in wages and benefits to workers.
Hank Kim says public employee pensions have been too politicized today and more dialogue is needed to help reduce the $8.5 trillion debt on the private sector side. If not, the US could be on a collision course with baby boomers and millennials going head to head for jobs.
“If the baby boomers can’t afford to retire, then we will have 75 million people competing for a limited number of jobs in the US.”