Why public pensions are so rich

Shifting government workers to 401(k)-style plans would offer greater transparency and keep benefits in line with the private economy.

By Andrew G. Biggs and Jason Richwine | The Wall Street Journal — According to government union leaders, their employee retirement benefits are “not lavish by any means.” So says Art Pulaski of the California Labor Federation. According to the American Federation of Teachers, public-employee pensions “typically are modest.” And the Service Employees International Union asserts that “After decades of full-time work for the state, the sad truth is that far too many retired state employees receive yearly amounts that force them to live in poverty.”

These claims are misleading, but reformers have a hard time conveying to taxpayers precisely how generous public-sector retirement benefits can be. That’s because government employees typically have “defined benefit” pensions that pay a guaranteed benefit regardless of how the plan’s investments may fare. Most private-sector workers hold “defined contribution” 401(k)-type savings accounts that guarantee no specific pension. Complex formulas obscure the fact that public pensions typically are much more generous than 401(k)s, making the situation ripe for misleading claims. Read the entire article (subscription required) . . .

Mr. Biggs is a resident scholar at the American Enterprise Institute.
Mr. Richwine is a senior policy analyst at the Heritage Foundation.

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