Tough Love: I also enjoy your explanation which implies other problems: 1) few if any politicians play a fiduciary role; 2) moral hazard is a consequence of such programs under political control. Are Social Security and these pension plans simply legalized Ponzi Schemes?

VERY few companies place new workers in “Traditional” DB Plans (like the ones Public Sector workers get). And while Traditional DB Plans still exist in the Private Sector, in 80-90% of these Plans, the Plans have been frozen … meaning no Future Service accruals for CURRENT workers.

The SOLUTION to the financial mess in the PUBLIC Sector is to do the same.

Being well versed on pension funding, here’s how this proposal shakes out …

(1) the Annuity-writers will “price” their products very conservatively to minimize the risk that they will be assuming. In other words, the cost to Taxpayers to fund the SAME level of pensions currently promised will skyrocket. Essentially the 7%-8% assumptions for earnings growth (currently used by all Public Sector Pensions Plans) will drop to the 2.5%-4% level used by the annuity-writers. These rates are even considerably below the (roughly 5%) rates Moody will use in evaluating such Public Sector Plans for the Credit worthiness of their sponsors, and below the rates Private Sector Plans are REQUIRED to use in their pension valuations. Did Senator Hatch think that off-loading that significant risk would be cheap ?

(2) While the Unions would love the strong “guarantees” AAA or AA rated annuity writers would bring to the table, there isn’t a snowballs chance in hell they will accept the significantly lower pensions that could be bought with today’s Taxpayer contribution levels. Of course they would gladly let the Taxpayers pay perhaps 100% MORE for the SAME pension levels promised today. If Senator Hatch thinks this proposal is (even remotely) a “solution” to this problem, clearly the Utah Citizens have elected someone incompetent to do the job.

(3) The ROOT CAUSE of the pension-generated financial mess many States and Cities are in today is BECAUSE the promised pensions are simply FAR TOO GENEROUS, and THEREFORE very costly to fully fund without SIGNIFICANT Tax increases and/or completely unacceptable reductions in govt-provided services. And when I say FAR TOO GENEROUS, I mean pensions for which the Taxpayer paid-for share is ROUTINELY 2-4 times (4-6 times for safety workers) greater in value at retirement than the pensions typically afforded Private Sector workers retiring at the SAME age, with the SAME years of service, and with the SAME Age at retirement.

(4) REAL pension reform MUST include either (a) or (b) below, with (a) being the MUCH better choice. Unfortunately, we have yet to find a politician with the guts to confront the very Greedy Public Sector Unions, and Senator Hatch’s proposal certainly does NOT put him in that category:

(a) hard freeze the ALL current Public Sector Defined Benefit (DB) Plans (meaning ZERO future growth) for all CURRENT workers, and replace them for FUTURE Service with 401k-style Defined Contribution Plans with a Taxpayer “match” of 3%-5% of pay which is what Private Sector workers typically get from their employers …. and with all Gov’t workers participating in Social Security, or

(b) IF (a) above simply CANNOT be accomplished (and only AFTER exploring all avenues to do so), then continue the DB Plans, but reduce the pension accrual rate for future service by A MINIMUM of 50% (66% for Safety workers with the richest pensions).

Many are new hires.

So why do gummit workers still have pensions, and lavish ones at that.

Why don’t they have to have 401ks like everyone else?