Posted on 01/09/2006 5:50:32 PM PST by george76
What does IBM know that most New York lawmakers don't?
Judging by Big Blue's recent announcement that it is shifting to a defined-contribution pension plan, it knows that these plans are the only way forward for any company that hopes to stay on this side of bankruptcy court.
Defined contributions have been the norm among small companies for years, but old industrial giants have been slow on the draw.
Some, like General Motors, are still grappling with defined benefit pension programs ...
There's a lesson here for New Yorkers faced with troubled pension systems.
The logic becoming so catastrophically clear to executives in the private sector still eludes lawmakers setting benefits for public employees...
In New York, most public employees in both the city and state can retire at age 55 with partial or - often - full pension benefits.
Many employees pay nothing into the pension fund while they're working...
Such generosity puts New York in a class almost by itself even among other government retirement programs...
This puts New York taxpayers on the hook for staggering amounts of money...
The city's pension obligations shot up an astounding 453% between the 2000 and 2005 fiscal years and are projected to hit $5 billion in 2007...
The state's contributions to the funds that cover all employees outside the city except for teachers rocketed up by 670% between 2000 and 2004.
Taxpayer contributions to the fund for public school employees outside the city topped even that, growing by 730% in two years alone and look set to double again in the next year.
None of these projections yet accounts for any effects of the recently concluded MTA contract negotiation with city subway and bus drivers.
Who pays for this raid?
The ordinary taxpayers...
(Excerpt) Read more at nysun.com ...
See: City of Dallas v. Trammell, 101 SW2d 1009, 1014 (Tex. 1937)
What the City of Dallas did (reneg on vested pension benefits) would be illegal if it had been a private corporation. Also, public employees are not insured by PBGC.
Any objective observer would have to say that a private pension is better than a public one when it comes to safety.
Watching United Airlines and other airlines cut pension promises now.
GM and Ford will follow soon.
Three advantages for defined benefit plans:
A company can invest more aggressively than an employee, because the risk is spread over more lives and more years. It can get a higher rate of return and provide a bigger benefit.
Suppose you've got a lump sum when you hit retirement age. How much should you spend in the first year? Unless you know how much you're going to earn and when you're going to die, you will either spend too much or too little. With a defined benefit plan's annuity, you know how much you're going to get. You are not exposed to investment or longevity risk.
Finally, if you are one of the lucky ones to stay with a company for a long time, a defined benefit plan will provide a larger benefit. Most plans apply your final average pay (or the current dollar benefit) to all your years of service. A defined contribution plan applies each year's pay to each year's contribution.
Why do you say pubic employees can't lose their pensions?
Trust me. That is a simple typo. See my straight face?
Good points.
If the company does not fail or go bankrupt or is taken over by some bad people...then defined benefits can be great.
"If the company does not fail or go bankrupt or is taken over by some bad people"
Note that these are bad things for an employee, anyway.
This is part of my reasoning for wanting allot of personal control over my own money...
"Nobody spends somebody else's money as carefully as he spends his own."
"Nobody uses somebody else's resources as carefully as he uses his own."
"So if you want efficiency and effectiveness, if you want knowledge to be properly utilized, you have to do it through the means of private property."
-- Milton Friedman
Not sure what plans you know of. Since the mid 80s all new Federal employess are under a defined contribution (401K) style plan and Social Security
Ha ,My daughter is a teacher in connecticut and the teacher pension fund is underfunded by 5.2 billion dollars here !The state just announced they are putting half the states surplus 250 million into the fund this year !Big deal
There are competing interests here. The employer wants control of the money for two reasons.
First, if the employee fritters the money away, the employer may feel an obligation to provide for them anyway. Also, the employee may not be able to retire when the employer wants them to.
Second, the defined benefit plan allows the employer to provide relatively higher benefits to the long-serving employee.
Freegards
It's true. Public employees in NY CAN'T lose their pensions. The state constitution says that their pensions shall not be "diminished or impaired." This applies to current pensioners and employees. That's why every suggestion solution involves creating another tier (Tier 5)for new hires.
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