A defined benefit pension system, like any retirement system, only works if there's enough money in it to fund what needs to be paid out. Seems straightforward, right?
Alas, not if you're a progressive. That's why they simultaneously push ideas like these, via a recently recycled Pat Crowley post at RI Future…
...that suggest the goal should be to get to a place where "all" people are going to be in a pension system, with a large part of the system "government sponsored". But if everyone is in a defined-benefit plan, then where will the money come from, when there's not enough money to simultaneously meet current obligations, while keeping enough in the kitty to pay for future obligations -- as is the case in many state pension funds (including Rhode Island's) right now? Or what will happen to pension benefits promised by companies that go out of business, without adequate resources in their funds to cover their future obligations?
- 87% believe all workers should have a pension so they can be self-reliant in retirement.
- 79% of Americans think it is a good idea for government to sponsor pension plans that small employers or individuals can join.
DB proponents offer two basic categories of answer to these questions…
In the end, DB advocates, who also argue the adequate funding and reasonable benefit levels can be assumed, aren't arguing for a system that's fiscally different from a 401(k)-style defined contribution system, they're arguing the government needs to take a certain portion of everyone's paycheck, because it can plan for everyone's retirement better than they can themselves (especially, I learned this week, in the case of people who belong to certain demographic groups whom they've concluded are unable to make the investment decisions that improve their chances for a maximal return, but I wouldn't dare touch that point, except to note that Judge Sonia Sotomayor might also agree that there are "inherent physiological differences" that might make one group "wiser" than another when it comes to decision-making, but that's her stated position, not mine, and I'm getting way off-track now...)