There is much reason to question turning to 401(k) plans, including the possibility that the transition costs will eat up any savings. One alleged justification, the rise in state pension costs from $160 million in 2000 to $2.6 billion today, is simply deceptive. In 2000, an anomaly, a booming stock market nearly eliminated the need for the state to contribute to the fund. Pension costs are not doubling annually.San Francisco Chronicle
-- Current shortfalls in some municipal pension funds are not because of bloated benefits. Rather, they are the result of the precipitous drop in the stock market in 2000-2001 that affected even giant pension-fund managers such as CalPERS. Yet the governor and his friends now want to shift all the stock- market risk from fund managers to employees.-- Defined-contribution plans are not cheaper to administer. According to CalPERS, it costs 18 cents per $100 invested to administer a defined-benefit plan. At the same time, it can cost up to $1.35 per $100 -- or nearly eight times as much -- to administer a 401(k)-type plan.
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Indeed, a report two weeks ago by Milliman Consultants and Actuaries found that Los Angeles County would pay nearly $1.3 billion more to administer the Schwarzenegger/Richman pension plan between 2007 and 2017 than it would pay for the current plan. And the Schwarzenegger/Richman plan would not result in a net savings until at least 2024.