Why Pensions are a Good Deal for States and for Workers

link here to article

Dean Baker makes a point that we covered in a prior post. That is, the unfunded pension liabilities of state governments are not as big a problem as conservatives have claimed. On average the unfunded liabilities represent 20 cents of every $100 of future state revenues over the same time period. The attack on the defined benefit pensions provided by states is often justified by comparing them with the defined contribution programs now offered by most corporations. Baker believes that the argument should be reversed. We should push for a return to defined benefit pensions in private industry. Corporations are better able to deal with short term swings in the stock market than their employees who have depended upon returns from their 401K plans.

Baker also argues that defined benefit pensions are a form of insurance. State governments provide the security of a fixed income based on the number of years worked. In return, they get a "premium" in the form of lower salaries which allow them to attract the same quality of worker at lower current cost. In a sense this is free for the state but it would be expensive for workers to purchase the same security from the private insurance market.

Conservatives are not likely to be attracted by Baker's arguments. They like the idea of transferring risk from the employer, whether public of private, to the individual. Less security for workers is a good thing for conservatives. Unless of course it is provided to top executives who are able to negotiate fixed benefit pensions from the Boards that they appoint to determine their compensation.