I don’t. And if you’re my age (under 30, but barely), you probably don’t either. They’re like unicorns, something that I’ve read about, but never experienced personally.
What I understand of pensions is basically that they’re promises from an employer that a certain amount of money will be made available to the retiree after a certain number of years of service. The funding commitment, or buy-in, by the participant, in most cases, is minimal. The thinking behind this mindset is commonly known as defined benefit, as opposed to the more commonplace 401(k) accounts that you and I have (or used to have before the economic crisis forced many of us to liquidate to keep a roof over our heads). The 401(k) accounts belongs in a category known as defined contribution. The basic difference is that defined benefits define just that, the benefit, not what the worker contributes, and defined contribution is the exact opposite, the contribution on the part of the worker is defined, not the benefit.
Pensions (defined benefit) are undoubtedly a better deal for the worker. Who wants to focus on what they have to save for their retirement? I’d much rather focus on what’s due to me without having really to consider what’s going to have to come out of my pocket to pay for the nurses who are going to be wiping the drool off of my chin when I’m zoned out in a nursing home at the age of 97. Naturally, these are the more expensive options, and private employers have pretty much completely abandoned defined benefit plans in favor of defined contribution plans. Government workers still largely have defined benefit plans, one of the few remaining perks of working in the public sector.
Most likely, this is set to change in the coming years. Many states are thinking about converting their systems to defined contribution plans, or a combination of defined benefit and defined contribution. And probably I’m going to surprise some of my readers out there, depart from leftist orthodoxy for once, and hit one into right field on this one. We have no choice but to abandon the purely defined benefit plan for workers. It’s simply to expensive for the states to be able to afford it while simultaneously paying for the other things that governments need to pay for. This isn’t a question of morals or what we ‘should’ do, it’s a question of what’s financially viable.
For those of you that are reading this that are teachers and cops, and stand to lose from this, I’m sorry. This is not a personal attack. I realize that the work government workers perform is vital to who we are as a nation and our continued existence. But the compensation model that we have in this country is simply not sustainable given the long term demographic trends that we’re witnessing in the United States these days. I’m not going to demonize what many have come to think of as ‘lavishly compensated’ government workers. That’s hardly ever the case. Mostly, government employees are everyday, middle class people like you and me. I still support the collective bargaining process, and I consider myself a friend of labor. But at the end of the day, the defined benefit retirement model is simply too expensive for this nation.
I don’t think that we should throw existing workers nearing the end of their careers into the defined contribution plans. I simply don’t think that would be fair. For those workers that are still going to be in the labor force for some time to come, I think that they should be put into it gradually. And for all incoming and new government workers, I think that they should totally enrolled in the hybrid plans.
This isn’t something that anyone enjoys doing. But it’s something that we must do as a nation if we truly want to remain globally competitive. And at the end of the day, it’s the right, not to mention fair, choice for this country.