Public pensions described as "ticking time bombs"

Experts say the country's public employee pensions plans face a shortfall of nearly $300 billion. The Arizona Capitol Times quotes an analyst with the Council of State Governments, described as a bipartisan organization for state government officials.

The premise of the article is that traditional public pension plans, known generally as Defined Benefit (DB) plans, are unaffordable and that many states are attempting to replace them with 401k-style Defined Contribution (DC) plans. The primary difference between DB plans and DC plans is that DB plans offer a set pension, a defined benefit, to retirees. It does not go up or down based on external factors such as the performance of a stock portfolio.

Under a DC plan, the contributions and the performance of the investement portfolio determine the value of the pension for the retiree. There is no guaranteed monthly amount.

The article mentions the Republican governors of Alaska, Californina, Massachusettes and Rhode Island who proposed DC plans for public employees in their states and all of whom but Frank Murkowski of Alaska failed in their attempts.

But their proposals also faltered in the face of fierce opposition from public employee unions, which say the 401k-style plans provide less comprehensive retirement security for state and local government employees.

Alaska estimates that its public employee and teacher retirement systems currently are short about $5.7 billion owed to employees when they retire. Supporters say the new program, which will apply to all state employees from Statehouse janitors to highway patrol officers to teachers, will help ensure that the state’s pension systems stay in the black.

The article also points out that one advantage of DB plans is that they give state governments firmer numbers with which to plan for the future since the costs are predictable.