A Weblog of Centrist Voices in American Politics
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A Weblog of Centrist Voices in American Politics | |
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February 27, 2005Private Accounts - The State ExperienceAn LA Times article reprinted in the Boston Globe reports that Nebraska has eliminated private accounts that had been made available to state workers as an option for new employees. West Virgina is also considering dropping its private accounts option. I don't know what to make of all this except: the details matter. Clearly, many people have 401(k)'s and other private accounts and find them useful. But as in the British case, some plans don't work out very well. Posted by rickheller at February 27, 2005 05:11 PMComments
Nebraska allowed the workers unlimited control of their own accounts instead of using a centrally managed system with limited options, such as the federal TSP. Is it any surprise that given unlimited opportunity to diddle and gamble, many did? Posted by: Tully at February 27, 2005 06:45 PMAs a federal worker, I have a TSP (Thrift Savings Account), which is akin to a 401-K. My wife,who started in the government several years before I did, is under the old system, in which she gets a set pension based on years of service and salary. Most employees that I know prefer that system to the TSP (newer workers like me don't have the set pension option). I've never heard anyone say they really prefer the ability to manage their own savings to the security of a set pension. Of course, I will acknowledge that federal employees are probably somewhat risk averse. Posted by: MWS at February 27, 2005 07:04 PMMost employees would indeed prefer a defined-benefit pension over a defined-contribution one. Defined benefit plans are going the way of the dodo for the obvious reason--they have trouble maintaining self-funding in the out years. This is due to the rapidly changing nature of the workplace. Long-term employment with a single employer just isn't all that possible for most people nowadays. There's a strong resemblance there between SS and defined-benefit pensions. Posted by: Tully at February 27, 2005 07:30 PMYup, all these stories suggest that there are good ways to do it and bad ways to do it. Sure, everyone would rather have the lifetime guarantee form of benefit as long as it's a sweet deal. Here's the thing: they're too expensive, and too unwieldy in an age of more frequent job changes. People are living l;ogner now, and the kind of cushy prmises made when peopl only lived to 73 are just not feasible with people living to 80+. One example? MA state workers don't pay intoi social security and are thus not eligible for it. BUT, on retirement and until they die, they get 80% of the average annual salary of their 3 highest earning years, plus lifetime fully paid medical. On top of that, lots of state workers get bought out early so the state can "save" money. Do the math on a worker that reaches 50K salary and lives for 20 years after retiring. It's a lot of money. We all have to face that if we are going to live longer, the stater can't foot the bill without us kicking in for ourselves. Posted by: bk at February 27, 2005 09:04 PM |
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