MA Lt. Gov. proposes Defined Contribution plan

Massachusetts Lt. Governor Kerry Healey says the state should abandon its Defined Benefit pension plan in favor of 401k-style private accounts.

"Our current system allows elected officials to leave public service with tens of thousands of dollars in perks," she said at a news conference at her GOP gubernatorial campaign headquarters.

She said her plan, which would need approval from the Legislature, could eventually yield more than $350 million in investment gains and administrative savings annually, while freezing the state's $13 billion pension unfunded liability.

"Each year, we have to steer taxpayer money away from education, local aid and health care programs to pay off the debt our pension system has accumulated," she said.

Healey's proposal also would also eliminate Massachusetts' 104 independent public pension systems and put their money in the state pension trust.

Thousands of dollars in "perks"? Is she talking about the retirement benefits that public employees earn for their years of service? It is easy, I suppose, to use fat cat "officials" as an example of why the traditional pension plan should be jettisoned. But, what about the tens of thousands of rank-and-file employees who spend their working lives serving the people of their communities and their state? What becomes of them?

Perks? Someone should hand Lt. Governor Healey a dictionary.

Someone should also hand her a copy of this analysis by NASRA.

There are good reasons for employers to retain a DB plan as the primary retirement benefit for public employees:

A DB plan is an effective tool for recruiting and retaining quality employees. Government’s exemption from most federal pension laws creates a rare competitive advantage for state and local government employers.

Providing a DB plan helps assure a secure source of income for retired employees, reducing the likelihood of these employees relying on public assistance during retirement.

By creating an incentive to retire, DB plans can facilitate an orderly transition of employees whose effectiveness or productivity may have waned. DC plans provide no such incentive, and may, in fact, serve as a disincentive.

This is to say nothing of the transition costs of switching from a DB plan to a DC plan, which benefit nobody so much as the financial services companies who will be crawling over each other for a chance to get their hands on all that cash.

I am unfamiliar with Massachusetts public pension law, but in my state, members of the public pension system have nothing to rely on but their DB retirement benefits. They do not pay into Social Security. If the same is true for Massachusetts public employees, the Lt. Governor's plan would place retirees entirely at the mercy of the stock market, without even Social Security as a hedge against destitution.