Academic

RON BROWNSTEIN: Public-sector pensions are too high, but 401k plans haven?t done so well. ?Replace?

By Glenn Reynolds

RON BROWNSTEIN: Public-sector pensions are too high, but 401k plans haven’t done so well. “Replacement of traditional pensions with 401(k)-type plans amounts to a massive shift of risk from employers to individuals. Under defined-benefit programs, employers bear the primary financial risk: They are obligated to provide the benefits regardless of how their investments perform. Under defined-contribution programs, workers invest their own money and suffer if the markets tank, as anyone with a 401(k) discovered in the 2008 meltdown.” You can look at mine and see that. On the other hand, defined-benefit plans mean that businesses are hostage to their retirement program investments, which doesn’t make a lot of sense. Defined-contribution plans give workers an incentive to see that society has proper emphasis on economic growth. We’re paying the price for the lack of that now.

Related: Megan McArdle: America’s 401(k)s Are Disasters, but Are Pensions Any Better? “There’s an almost delusional quality to our expectations of retirement.” Individuals don’t want to set aside enough money to cover requirement, because that would require sacrificing consumption today. Governments feel the same way.

Full post as published by Instapundit.com on March 07, 2011 (boomark / email).