People are hired to do a job, and they are given a contract, and the contract pays them for the job, in various ways.
I work for a company. They hired me to do a job. In return, they pay me. They pay me a salary, they give me holidays, they give me vacation. They pay for most of my health benefits. They have a defined benefit retirement plan. They put money into my 401K. All of these are ways I am compensated for the work I do on their behalf.
When I am retired, the company will still be paying me my retirement benefits. I guess at that time someone can complain that the company took on the market risk of the cost of the benefits they provided me. Which they did — but if they didn’t, I’d have wanted more money to pay for those risks.
Or if no companies did that, there would be businesses that would spring up that would offer a defined benefit payout for premiums, kind of like whole life insurance. And then THAT company would assume the risk, and they would charge me what they thought that risk was.
So, apparently the government hires some long-term contractors, probably through contracting companies. It sounds like those companies get a contract, and the government as part of that contract assumed pension liability for the workers. Now that looks stupid because of the increased costs recently of the benefits; at other times it looks like a good deal.
If the government didn’t take that risk, the contracting company would have charged whatever they thought it would cost to assume that risk, just as I assume every defense contractor builds medical and pension overhead costs into the rates they charge government, and just as every car the government buys includes a cost the car companies think is necessary to pay their employee benefits, and every ream of paper, and every computer. I’m sure every building company that the government hires does the same.
It bothers me when people start talking about earned pension benefits as if they are government handouts. It happened a lot in the Wisconsin discussion. I’m all for getting the government to set more reasonable obligation limits in their contracting, but the contracts that already exist were agreed to with people for work those people performed, and they are not “handouts”, any more than any of your companies are giving you handouts when they let you take a vacation day, or pay your pension.
Nope, sorry, bad practice. With government-enforced collective bargaining it is too easy for CEO’s to game their profitability today by promising unaffordable pensions in the future. That leaves the companies uncompetitive long after the CEO has taken his compensation, including performance bonuses.
And in the public sector the situation is even worse. It’s in the interest of the government officials to give away the store today, with their constituents left holding the bag for decades and decades.
Defined benefit programs are rife for fatal organizational mismanagement.