Here's an (at least to me) intriguing question about govt defined benefit plans: why do govt entities "fund" them at all? I understand that in the dreaded private sector, funded defined benefits are needed - a firm can go bust and contributions already made should be safe from that. But a govt body? The very essence of govt bodies is that they are immortal! No matter what, they have that power of taxation that can be used to fund all employee benefits.
Think it through:
- no fund to establish means no favors to friends to run the funds
- no fund to establish means no tinkering with contribution rates to alleviate current account budget problems
- no fund means the govt body (including its workers who are future benefit recipients) has to think about the balance between current employee payroll and pension bennies.
In short, picture this: what would happen if, say, the school budget had to be allocated year-by-year to current and past employee benefits in an "equitable" way? I'd love to listen in on those discussions.
Guess I got that off my chest...
Without investment returns there is no way they could pay out the benefits they have pro used. As it is now most of them figure in a higher rate of return than is reasonable.
You are right, having to pay current and retirees out of the current budget would be an interesting school board discussion. NYC and some other cities already have more retired police than current.