Alaska Take Note: Pensions Not Dead Across the Nation!
29 August 2006I have written extensively about the recent destruction of the pension systems for public employees in Alaska (traditional “defined benefit” plans), and their replacement with “defined contribution” plans similar to 401k plans, which are little more than savings accounts. Some time ago a legislator mentioned to me that he thought this was the worst piece of legislation passed in many years in Alaska–and I would have to agree.
However, this is what is important: the struggle by ideologues and by those who believe they can profit from the destruction of traditional pension plans for public workers is increasingly being met by a powerful upsurge of resistance by public employees and their families who understand the critical necessity of maintaining or returning to a defined benefit plan, in other words, a traditional pension. Two recent victories come to mind.
The threats to the continuation of their traditional, defined benefit plans for Colorado government workers have been resolved by two victories:
The results in Colorado are a major victory for…all public pension organizations and unions working to preserve defined benefit plans for public employees.
First, the governor and the state legislature worked out an agreement on how to reform the system without eliminating defined benefit plans for public workers. The compromise will be a little less generous for future hires under new legislation, but members of the Public Employees’ Retirement Association have essentially saved the DB plans.
The compromise legislation emerged in the General Assembly’s final days as Democrats, PERA and Colorado’s employee unions hatched a plan to fix the pension plan’s $11.3 billion unfunded liability. The governor, who had threatened a special session if a PERA bill was not passed, agreed to the compromise.
Second, the Americans for Prosperity (who supported eliminating defined benefit plans through a ballot initiative) has withdrawn its ballot initiative to eliminate DB plans. [See the full article online]
And then there is the most interesting case of West Virginia…
In 1990, the state legislature, in a moved designed to “save money” decided to eliminate the defined benefit plan for new teachers and place them in a DC arrangement, with individual accounts. The state soon found that this move neither saved money nor provided teachers with adequate retirement income. Recruitment of teachers and the loss of experienced teachers to surrounding states was a concern.
So in 1995, the state legislature abolished the DC plans for new hires and placed them under the defined benefit plan. The change from DC to DB saved the state money and provided a better retirement and a guaranteed retirement income for the state’s teachers.
However, there were a group of teachers in limbo. They we given the choice as a group - to either stay in the DC plan or return to the DB plan. The legislature set two thresholds for the vote: a majority of the teachers had to vote, and then a majority of those voting had to approve returning to the DB plan.
There were 22,707 eligible votes — 56% (12,747) voted in the election and 61% (7,821) voted to return to a defined benefit pension plan. [Source]
Finally, I would like to draw your attention to an excellent article by Teresa Ghilarducci, Professor of Economics at the University of Notre Dame. Her article title boldly declares: Future Retirement Income Security Needs Defined Benefit Pensions. The article is available on the Center for American Progress website. Here are a couple of paragraphs from the introduction…
Are defined benefit (DB) pension plans dead? They certainly look dead. Last year, several airlines famously dropped their DB plans onto the government-backed insurer (the Pension Benefit Guaranty Corporation). Meanwhile, in the first week of 2006, the International Business Machines Corp. (IBM) followed the lead of the Sears Holding Corp., Verizon Communications and over 67 other companies, which froze or closed their DB plans to new hires in 2005. IBM and the other “DB freezers†have instead opted for 401(k) plans, which shift the risk of preparing for retirement from the company to the individual worker. Now, retirement savings depend on workers’ ability to save regularly, invest wisely, and at low costs.
However, these trends lead to the misleading conclusion that DB plans are going the way of the dinosaur. Quite the contrary, many employers continue to offer these plans. Most Fortune 500 companies, public sector employers, new small professional firms (Frieswick 2002), schools, and hospitals all maintain DB plans. Additionally, a small number of employers that replaced DBs with defined contribution (DC) plans, such as the state of Nebraska, are now switching back. The truth is employers will continue to sponsor DB plans because both employers and workers often prefer them for sound reasons.
ldw