Thinking About Pensions

I’ve been reading this article about the Little Hoover commission calling for pension rollbacks, as well as the situation in Wisconsin, and getting more and more annoyed. Many Americans—and politicians in general—love to be punitive with someone else’s money.

Think about it. What is a pension? A pension is a defined benefit program that pays out to an employee after they retire. The employee uses the amount of the pension as a key part of their retirement planning, ensuring they will have sufficient funds to live on (when combined with any social security they receive). Usually, it takes a number of years of service to earn a pension. Often, the best pension plans are for jobs where social security contributions are not made (such a teachers) or where the pay rates are often not comparable to industry (such as with government workers—and yes, most government workers in the lower tiers are not well paid compared to the equivalent positions in industry). Good pensions often ofset other employment factors such as risk or low pay, and often reward loyal, long-term service. Most importantly, a pension is a contract between the employer and the employee. You don’t just yank away the financial security of the retirement years, especially when the job market may not permit these people to find jobs.

Now, does this mean all pension plans are perfect? No. Does this mean some employees don’t abuse the rules of their pension plans? No. But the basic notion of the plans shouldn’t be tarred by the few bad apples. Identify the poor plans and renegotiate them. Weed out the abusers and fine them, and fix the language of those plans. But we do need to remember that the vast majority of those eligible for pensions have worked hard for that security, and deserve it.