Posted by
John R. LaPlante on Wednesday, October 11, 2006 5:18:31 PM
Note: This is one of a series of observations from the Education Reform Summit / Annual Meeting of the State Policy Network, held in Milwaukee during the week of October 2.
It’s been said by some that the move towards defined contribution plans (e.g., 401k) and away defined benefit plans (i.e., traditional pensions) is an act of a right-wing cabal seeking to beat up on the worker. In the case of public employees, it’s allegedly part of a plan to dismantle government.
How then to explain the moves of some people not usually thought of as being part of the “vast right-wing conspiracy?” Gov. John Corzine (D-NJ), for example, recently suggested that New Jersey must change the benefits packages it offers to new employees. (States usually cannot legally change the benefits packages of current employees.) In his State of the State address (p. 5, PDF), he called for raising the retirement age and “means-tested defined contribution plans.”
The marketplace is moving towards defined contribution plans, for their portability, and predictability. Government, driven by vote-seeking officials and special interest groups, is far away from matching the private sector, in which two-thirds of pensions are defined contribution.
But the hard facts of economic reality eventually make their impact known, even in a political climate. If government employee pension plans continue to outpace private plans, if politicians continue to implement unwise policies to buy labor pace, states will be faced with some unpleasant choices. They can impose crushing tax increases to maintain existing growth rates of government and of pension plans, or they will find a way to cut programs to pay for pension obligations.
As usual, taking action rather than delaying it will cause pain—but not as much as pain as waiting.