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beyond blue
Can Michigan Be a Model for Pension Reform?

Momentum is gathering in the Wolverine State to replace beleaguered blue model defined-benefit pension systems with the more sustainable 401(k) style plans that are the norm in the private sector. The Associated Press reports:

Struggling under the weight of pension and health care obligations, Michigan lawmakers appear ready to take another whack at public employee benefits — a move that reflects renewed determination to shift workers to 401(k)-style retirement systems, even if it happens in baby steps. […]

The proposals could serve as a national blueprint, and they will provoke a pitched battle with public unions that are desperate to preserve traditional benefits.

A large-scale switch to defined-contribution pension plans wouldn’t just stop the cycle of union lobbying, legislative over-promising and public budget-busting that has created a multi-trillion dollar pension crisis nationwide; it could also help improve the quality of the civil service. One effect of defined-benefit pension systems is to lock workers in place, preventing them from switching careers for decades if they ever want to see a cent of their benefits. (This in turn makes unions fight tooth and nail to make it as difficult as possible to replace underperforming public employees). Making those benefits portable would help make the public sector workforce more dynamic and merit-based.

Moreover, 401(k) style plans are conducive able to adjust to demographic changes. If a state or metro area has a booming population and economy, policymakers may think can afford defined-benefit pensions to be financed by future generations. But if the population (and tax revenue) stagnates unexpectedly—as happened in Michigan over the past two decades—then the government is still stuck paying massive pension bills for years to come.

Here’s hoping that the Rick Snyder administration in Michigan can beat back public unions and make this change, and that other states do the same before their pension time bombs take out funding for vital public services.

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  • Psalms564

    I mean, why not Michigan? It makes sense that one of the cradle of unionism will lead us out of the dead end that unions represent.

  • FriendlyGoat

    As long as they screw over the police at the same speed and to the same degree they screw over other public employees, anything is on the table.

    • seattleoutcast

      Why should I care? The public employees screwed us over.

      Here in beauuuutiful Seattle, the public employees have forced a 5% utility increase for five years. And for what? For pensions. Greed, pure and simple.

      • RedWell

        “Greed” and “self-interest” are related but should not be conflated.

        • FriendlyGoat

          Thanks for your appreciation of this subject. Notice that from a conservative we got, “Why should I care?” (whether police are favored).

          • seattleoutcast

            Yah, you blame the victim. Typical of a leftist. Conservatives are angry at health care increases and the leftist response is that we’re selfish because we don’t help poor people.

            When leftists put out their own money for their causes they can start complaining about so-called conservative greed.

            How much do you give to the homeless, to refugees, to poor people, to immigrants? Hardly nothing, I’m sure.

          • FriendlyGoat

            I’m not defending all public employees and I’m not calling you selfish.
            I’m saying that it is my sense that conservatives are tending now toward the idea of giving sweeter financial deals to law enforcement personnel than to other public-sector personnel. That should be opposed so I’m opposing it.

          • RedWell

            Whoa, slow down there, compadre. Ramping up from equal treatment of public sector employees to some assertions about left/right views of health care to speculations about FriendlyGoat’s charitable giving is, shall we say, less than coherent disputation.

        • seattleoutcast

          It is not self interest. It is greed.

      • FriendlyGoat

        You should care because if you don’t like the words “police state”, don’t fall into the trap of somehow believing that law enforcement people are more deserving of financial security than other public employees. I don’t know about Seattle, but I “smell” this two-facedness about some public employees being better than others a-comin’ in red states all over the country. It is the reason I keep bringing up the issue.

        • seattleoutcast

          Have you looked at the teachers pensions in California? Your fear of a “police state” blinds you to greed on all sides.

          • FriendlyGoat

            Reduce the police pensions with the teacher pensions, okay?

  • markterribile

    Defined Contribution plans have another virtue. The voter with money riding on the health of the economy is less likely to vote for utopians who will tank the economy. Expect the Donks to fight this like their jobs and power depend on it … because they wilk.

  • Boritz

    List any virtues you want for such a change. Just don’t tell me that it will lead to quallity retirements any more than the current system does.

    • RedWell

      Overall, the idea makes sense in terms of helping the state become more solvent, but advocates should also be clear that recipients are likely to get less than they would with a pension and that they had such a plan in, say, 2008, and were close to retirement, things would not look so great.

      Also, health care: implication seems to be that government employees will end up on the federal plan, so the idea of saving money there is an illusion.

  • Dale Fayda

    It’s a start, but as long as public sector unions continue to exist, this problem will never fully go away. If it’s not through the pension system, the unions will still find a way to extort additional money from taxpayers in their states. IMHO, the only way to work through this crisis in the long term is to de-unionize all public employees.

    • f1b0nacc1

      Spot on…. Anything less than abolition is simply putting a band-aid on cancer

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