Defined contribution vs. defined benefit pensions
Today’s newsletter from the Heartland Institute highlights research and commentary on two kinds of government employee pension plans: defined contribution vs. defined benefit.
According to the Pew Center on the States, state governments in US have accumulated over $700 billion in unfunded liabilities for pension or other retirement benefits. Likewise, thousands of local governments are facing the same pension crisis, although the accumulated figure is not reported.
The underlying cause of the problem is that governments traditionally use “defined-benefit” pension plans, which guarantee employees a pre-set benefit amount upon retirement. The “overly generous” benefits were not funded up front, however, and thus the costs were push onto future generations of taxpayers. [Jerry: The crisis only looms larger over time, with more people retiring, longer life expectancy retirees have, and skyrocketing health care expenses.]
Accordingly, the Heartland Institute proposes that governments should following the private sectors’ lead and switch to a “defined-contribution” system, which are fully funded up front and thus more transparent and sustainable for governments and taxpayers.
Besides, the newsletter offers additional information on both pension systems:
• Plight of the Benefits
• The Gathering Pension Storm
• Defined Contribution Pension Plans in the Public Sector
• Pension Time Bomb
• The Ticking Time Bomb in State Pensions
• Public-Sector Pension Crisis Worsens
• Let Employees Control Future of Retirements
• Pension Liabilities Loom as States Try to Help Retirees