From Edward Glaeser in the Boston Globe: "Cleaning up the public pension system"
Today, public employees have been promised almost $13 billion more in pension benefits than Massachusetts has set aside money to pay for. We owe another $13 billion for other post-retirement benefits to public workers. The average US state funds 83 percent of its pension liability. The Commonwealth has funded only 73 percent of its debt, and a lot of cities of towns are in much worse shape. Quincy has funded only 58 percent of its pension liability; Springfield has funded less than half. These pension debts reflect the high benefit levels in places like Quincy, which is a leader in six-figure pensions.What's the solution? The transparency of defined-contribution plans such as 401(k)s that allows public workers to earn their way to retirement instead of depending on the shaky promises of the government:
Moreover, since pensions vest slowly, they create an artificial incentive for workers to become long-term employees of local government. The average public employee in Quincy is 47 years old. Experience is great, but there is also much to be said for the Roman ideal of Cincinnatus, who went back and forth between saving the republic and plowing his fields. We should have a system that is as friendly to those who would serve the state briefly as it is to those who want to spend their entire careers in government.The Big Three automakers played the same game by offering lavish benefits in exchange for keeping wages under control. But this is just borrowing against the future since wages are expensive but promises are cheap.
Moving to defined-contribution plans for new public employees would be a step in the right direction. In the private sector, defined-contribution plans are ubiquitous. They allow workers to move more readily across firms. They make payment more transparent and reduce the risks posed by unfunded liabilities. Defined-contribution plans for public employees would have the same benefits.
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