[quote=CA renter]
When you suggest that public sector employees should have their vested benefits reduced, you are saying that their compensation should be reduced. Defined benefit pensions are a form of deferred compensation. You should know that since you claim to be a financial expert.
[/quote]
I would consider reduced deferred compensation as a cut in total compensation, but I realize that’s the inevitable outcome. The math says it’s pretty much impossible for that deferred compensation to be paid in full. Whether you want to blame wall street, politicians, unions, tax payers, the fed, demographics or whatever it doesn’t change the mathematical equation.
Essentially it’s just far to risky to offer guaranteed deferred compensation that will be paid out 40, 50 60 years after a person starts working based on events that are unknown. When that police officer started 30 years ago making $20K and 30 year treasury rates where over 10% did the actuaries have any idea that the officer was going to work a ton of overtime those last couple of years earn $150K/year and get a defined benefit of $100K year with 30 year interest rates at 3.5%. People couldn’t believe 30 years interest rates would get to to 4% 5 years ago, let alone 30 years ago.
The one benefit of defined benefit contribution plans, retention, isn’t worth the risks, the frauds, the vote buying, and everything else it enables. That’s the bottom line. The rewards (reduced training costs retention, etc.) don’t outweigh the risks and therefore they should be scrapped. They were lies to the employees receiving them. The private sector came to this conclusion a long time ago. Private sector pension plans went bust all the time. The benefits were renegotiated all the time. Most businesses don’t last 50-60 years, even fewer grow and thrive for 50-60 years.
There was a very small period in history where defined benefit retirement plans were offered and many of them failed to deliver. Public sector plans are no different, they will fail to deliver as promised even with laws and implied tax payer backstops. The money isn’t there.
