Public pension critics are often accused of indifference towards the issue of retirement security and/or naïveté about defined contribution plans' shortcomings.
First, the question is not whether retirement security is a serious issue, but whether it's a core function of state and local government. Why should the public sector provide special "old age poverty insurance" for its retirees? Unions and many system administrators view retirement benefits not as compensation, but as, essentially, special social welfare programs for retired public workers.
Second, of course not all defined contribution plans are equal. And by all means, let's help to promote better plans.
The Manhattan Institute's Empire Center shows how it's done. The recently-released policy brief "Shrinking the retiree health care iceberg" explains Retiree Medical Trusts (RMT), which are collective defined contribution plans for retiree healthcare. As such, RMTs provide governments with a way to preserve retiree healthcare benefits while also reducing or even eliminating their long-term liability.
Throughout an employees' career, employee and employer would make contributions into a trust fund; representatives from labor would oversee investments and disbursements. "What discount rate should be used to project future benefits?" "How much should employees contribute?" "Should benefits be increased during bull markets, and if so, by how much?" "How to react to bear markets?" In a standard defined benefit system, these are governments and taxpayers' problems. In an RMT, they are all unions' problems.
Retiree medical trusts are still rare among state and local governments, but not unprecedented. They can provide substantial premium support to retirees-the example in the report is of a fund for police officers in California that is projected (if not guaranteed) to provide $700 per month. RMTs enjoy a highly tax-preferential status, as both contributions and withdrawals are tax exempt.
Reformers should write more reports like this, because let's be realistic. Many governments are likely to continue offering defined benefit pensions and retiree healthcare, even though, yes, they are costly, unnecessary, and basically unfair to taxpayers. But to stay in the game, it helps to be constructive.
401k critics emphasize high fees, low participation rates, and unprofessional investment decisions. These can all easily be avoided by collective defined contribution plans.
State and local governments are large employers, often with 1,000+ workers. Employer benefits surveys regularly demonstrate that pensions and retiree healthcare are more common among large employers, in both the private and public sectors. Why not design benefit systems that utilize economies of scale? It's simply a question of sound public administration.