Foxes and Henhouses

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Andrew Samwick writes about the well-known problem that employers — both private and public — have been underfunding their pension plans for years:

There is nothing inherently wrong with a defined benefit pension plan, but its implementation has been a challenge in both the public and private sectors. It is a promise to pay compensation in the future. To honor that promise responsibly, the plan sponsor needs to fund it adequately in the time interval between when the promise is made and when it is kept. Simply put, that hasn’t been happening in large private sector plans and in most public sector plans. The problems are worse in the public sector because voters don’t pay as much attention to the financial bottom line as shareholders do and because the accounting standards are sharper for private sector plans than public sector plans. For many years, elected officials have been making promises that future (now, near-future) taxpayers are not going to want to keep.

This seems like a problem that really could be solved via privatization: instead of allowing employers to self-fund their pensions, require them to use an outside fund (or funds). An outside fund would insist on contributions being adequate to fund projected payouts since they’re the ones on the hook to make good. No gameplaying tolerated. And as long as there are enough funds out there, competition would keep them from going in the other direction and demanding contributions that are excessive.

What am I missing here? (Aside from the fact that employers wouldn’t like the idea of not being allowed to play games, that is?) A whole swath of regulations would be required to make this work, but surely nothing more complicated than what we already have. Almost anything seems better than allowing employers to decide for themselves what’s adequate and what isn’t.

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DEMOCRACY DOES NOT EXIST...

without free and fair elections, a vigorous free press, and engaged citizens to reclaim power from those who abuse it.

In this election year unlike any other—against a backdrop of a pandemic, an economic crisis, racial reckoning, and so much daily crazy—Mother Jones' journalism is driven by one simple question: Will America move closer to, or further from, justice and equity in the years to come?

If you're able to, please join us in this mission with a donation today. Our reporting right now is focused on voting rights and election security, corruption, disinformation, racial and gender equity, and the climate crisis. We can’t do it without the support of readers like you, and we need to give it everything we've got between now and November. Thank you.

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