Australian Experience Shows Pitfalls of Ending Traditional Pensions

PensionDialog welcomes the following post from the Alliance for Retirement Income Adequacy, a network of Canadian organizations which are promoting an informed discussion about the importance of income adequacy in retirement.

These days, in Canada and around the world, headlines talk about switching public sector pension plans from traditional “defined benefit” plans to newer “defined contribution” models—such as 401(k)-type plans that are in the U.S.

Those who favour the DC plans argue that they cost less – typically the contributions made by plan members and employers are lower – and that the employer (or the taxpayer) does not have to worry about shortfalls when the plan is underfunded.

The private sector seems to have embraced DC, or so the argument goes, so why not the public sector?

The Cost of Pensions

On a nationwide basis, pension costs for state and local governments are roughly three percent of total spending.  According to data from the U.S. Census Bureau, pension costs since 1980 have been reliably stable, averaging from around four to three percent.

Pensions and Retirement Plan Enactments in 2011 State Legislatures

The following report is cross-listed here by permission of its author, Ronald K. Snell of the National Council of State Legislatures:

FINDINGS. Even more state legislatures enacted significant retirement system changes in 2011 than did so in 2010: 29 in 2011, compared to 21 in 2010. Since some states revisited the topic, in all, 41 states enacted significant revisions to at least one state retirement plan in 2010 or 2011.