Pensions are not dead, but they are dying ? in the private sector. High costs of running them are pushing more companies each year to replace them with 401(k) plans for employees.
According to the most recent benefits survey from the Society for Human Resource Management, 33 percent of employers offer defined benefit retirement plans, down from 40 percent last year. Only 15 percent of small businesses ? the largest employers in the state ? offer them. This is not a new trend; the number ofcompanies offering pensions have been shrinking for years.
Gannett Co., publisher of USA Today and more than 80 other daily papers, is one of the latest to eliminate its pension plan in an attempt to save $90 million next year. In a memo to employees, CEO Craig Dubow said, “Freezing the pension plan benefit is another important step in keeping financially strong.”
State and local governments need to follow the private sector lead unless they want to saddle taxpayers with astronomical debt in coming years. A new report from Mercer, a human resources consulting firm, shows pension plans at S&P 1500 companies have lost about $280 billion in assets, a 17 percent decrease, since last fall when the credit crisis began. That can only mean bad news for actuarially unsound public pensions too ? and taxpayers, because a higher percentage of tax dollars will have to be used in coming years to keep pension plans solvent.
Baltimore County last year restructured benefits to save money. But most other local governments have done nothing to address ballooning pension costs, including Baltimore City. It plans to reduce payments to the pension plan this year to $106 million, down from $118 million in fiscal 2008 ? just as the market is tanking and more money is needed to keep the plans fully funded. Aside from pensions, taxpayers must also fund a $2.9 billion liability for health care for future city retirees.
Combined with a shrinking population, these liabilities can only mean massive cuts to city services, higher taxes ? or both for city residents.
Sound fiscal management calls for switching from a pension to individual 401(k) plans. It will not only save money, but allow people to take their retirement money with them when they switch jobs.
In a utopia, everyone could retire at 60 and receive a fat pension check and full medical coverage. But we don?t. Taxpayers should not be asked to pay for benefits for government employees that the vast majority of them will never receive and could not afford.
