BRYAN CAPLAN
May 7, 2013
Keynesian Bets: What's Out There
May 6, 2013
Keynesian Bets Bleg
May 6, 2013
The Pyramid of Macroeconomic Insight and Virtue
May 2, 2013
A Natalist Provision
May 1, 2013
I Was a Teenage Misanthrope
DAVID HENDERSON
May 5, 2013
John Thacker on Vaccinations and the Sequester
May 3, 2013
Chef Rudy's Virtues Project
May 2, 2013
My take on Reinhart and Rogoff
May 1, 2013
Medicare Kills a Program
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I think the problem here is a poor incentive that hits both the public and private sector. Pensions are promises to pay far in the future. In theory, employers (gov't or business) should treat a pension increase as a wage increase. More cash is needed today in order to set aside a savings fund large enough to pay the pension tomorrow. In both cases, though, complications intervene. Tomorrow is a long ways off, the people running things tomorrow will be different. If the contribution is cut just a little bit today, there's a good chance no one will notice since market variations alone can make a pension fund swing wildly between under and over funded....
I proposed an idea on my blog to create a standardized, small pension unit. For an amount of around $100, anyone can purchase a 'pension unit' which issue an annuity starting at retirement. The pension unit would be like a US savings bond in that it is small enough to buy as a trivial gift but could be accumulated to become a serious portion of someone's retirement portfolio.
By purchasing pensions from a 3rd party, governments and businesses would have to be transparant in accounting for their obligations. If the police union negotiates a nicer retirement, the state has to purchase more $100 'pension units' right now. Likewise individuals could purchase pension units for themselves if they want less 'lump sum 401K' and more social security like annuity in their retirement.
Because of this sort of thing Government jobs are very desirable and draw employees away from jobs in which they might produce more.
While I don't disagree that investment losses will have to be made up with higher taxes, I believe Mr. McChesney is missing a critical point.
Most private plans are defined contribution. If investments decline the employee loses.
Many government plans are defined benefit. The government has an obligation to pay the employee $X/year upon retirement. If investments decline, taxpayers have to make up the difference with increased funding from higher taxes.
This is going to become a huge issue as taxpayers start to realize how expensive government pensions really are. Another annoying fact is that the higher cost of government pensions are rarely included when journalists compare private and government salaries.