The TEXPERS Blog 1

One of the very most frustrating dynamic of the whole “defined advantage versus described contribution” argument for public employee pensions are our competitors’ continuing use of unwarranted assumptions to make their points. An unwarranted assumption makes a summary that is based on a premise which is false or unwarranted by the facts. The premises are “suppressed or vaguely written typically,” relating to Wikipedia’s explanation of unwarranted fallacies.

Let’s take as example “Commentary: Solving the debt in public employee pension systems,” an impression piece published lately by Brent Sohngen. ” It’s hard to understand how Sohngen is knowledgeable about pensions, in Texas especially. Only those three things can fix the nagging problem of unfunded liabilities? We can think of at least one additional thing: employers should make the entire actuarially required contribution (ARC) always and everywhere. If they don’t problems take place.

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440 million to this program by raising condition employee contributions to 9.5% of payroll. It was a situation that was due to years of underfunding. It need not have happened this real way. In 1997, the state passed legislation that allowed a couple of public employees to shift from the defined-benefit plan, and into a precise contribution plan.

These open public employees would be set loose to manage their own pension investments, like private 401(k) programs. Those that shift out tolerate more individual risk, but also for many people the potential risks are worthwhile because they gain portability – or the ability to take their pension savings with them if they leave condition employment.

Since 1997, only 3.1 percent of employees have shifted to this described contribution plan. Perhaps the most important reason is that the huge benefits paid to retirees who stay static in the defined benefit plan are still really generous. Did you see that the most important reason behind the failure of a shift from the DB plans was that the described benefits remain really large.

He ignores his own discussion in the preceding paragraph, but evidently the capability to gain portability and being “set loose to control their own pension investments” weren’t good reasons for employees to change either. If someone is let loose to manage their own investments, it would appear that they would be assured they could beat the earnings gained from the pensions’ investments.

The truth is that few do & most people know they won’t. Who wants to keep more risk really? Moreover, why should they when they were told that they would have lower annual salaries in return for longer-term retirement benefits. Sohngen steps in it further, noting how Ohio’s ‘tax’ of these who opt out is another disincentive.

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