Pressure for Montana to adopt IBM pension model

The DB versus DC debate comes to Montana.

The Missoulian opines that Montana and its public employees would be better off with a 401k-stlye defined contribution pension plan, as opposed to the traditional defined benefit plan in place now.

Montana should convert its public employee retirement system to a defined-contribution plan for the same reason IBM just did. Many private companies are converting. A Hewitt Associates study cited in a recent edition of USA Today noted that only 67 percent of large employers now offer conventional pensions, compared with 91 percent 20 years earlier. More and more are converting to defined-plans that fulfill the employer's obligation with each paycheck and give employees control over their own funds - and the knowledge of exactly how much money they have for retirement.

People often say they'd like to see government run more like a business. Here's one good way to do it - a way likely to serve employees and taxpayers better over the long-run than the current, unsustainable pension system.

Of course, government is not a business. Government and business are designed to do different things. Businesses exist in order to maximize profits. Government exists to provide for the needs of citizens.

According to the National Association of Retirement System Administrators (NASRA), DB pension plans are one of the tools governments use to attract and retain qualified workers. This, too, is good for public employees and for taxpayers.

In general, public employers recognize that DC plans have many positive attributes, but to make them work well, many factors must fall into place:

participants must consistently make sound investment decisions over their working and retired lives; they must remain in the workforce steadily, avoiding lengthy time off for having children, raising a family, completing an education, or for illness; they must have a sufficient amount withheld from their pay; they must avoid borrowing against and spending their retirement assets; and they must make appropriate decisions regarding withdrawal rates during retirement.

Even then, employees might exhaust their assets after retirement. Hence having a DB plan as the primary retirement benefit protects public sector employees against many of these problems

Public DB pension plans have also enabled public employers to achieve important objectives related to the recruitment and retention of quality workers. These plans financial security in retirement and reduce retiree reliance on public assistance programs. The fact that these plans have evolved relatively independently of the federal regulatory structure governing 16 private pensions has allowed the public plans to engage in an ongoing process of creating and modifying plan designs and governance structures to meet the unique needs of public sector employers. The independence, flexibility, and profitable prudence of these plans will continue to support public employers in their ongoing mission to serve taxpayers, while providing financial security to retired public employees and significant economic benefits to their communities. Public plans are, indeed, a useful component of the new retirement paradigm of the future.

Those who wish to preserve public DB pension plans should not leave unchallenged the simplistic argument that if DC plans are good enough for private-sector employees, they are good enough for public employees.