Saturday, March 13, 2010

Public Pensions

Last week I saw another article about the dishonest and irresponsible ways many states and other public entities handle their defined benefit pension obligations. Clearly some reform is needed. I believe a simple and effective reform would be to prohibit public entities from offering defined benefit plans at all as they have repeatedly proven their inability to manage them. This might seem a bit drastic but I believe lesser changes are likely to be ineffective as there are too many ways to game the accounting for defined benefit plans and this makes it too tempting for politicians to promise benefits today without adequately financing them.

Note public employees could still be given generous defined contribution plans. But it is unlikely they would be as generous as current plans as the costs would be harder to hide. This doesn't bother me as I don't think anyone is entitled to compensation based on dishonest accounting.

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