Archive for October 2011
By Charlie Arlinghaus November 2011 As originally published in the New Hampshire Union Leader In many ways, most of what those of us on the right are trying to achieve today is just recycling the efforts of John Sununu from thirty years ago. It is fitting that he is being honored next week as an [...]
President Bush Salutes Gov. Sununu
With mounting unfunded liabilities in their pension systems, made worse by the recent economic turmoil, many states have begun looking at other retirement benefit options. In recent years, policy makers in a number of states have turned away from the pure pension model, instead opting for plans that are not only fair to the employees but also free the taxpayers from being left with the bill for huge deficits. Given the scale of the pension funding crisis, several reform minded states have instituted a variety of systems to replace their pension systems, which are outlined in the following paper.
Pure Defined Contribution System:
A pure defined contribution system functions in the same way as a private sector 401(k) does. However, rather than having employee contributions matched by the employer up to a certain percentage of salary, state plans tend to fix the contribution rates, similar to a defined benefit plan. Under a defined contribution plan, all of the risks and rewards of the investments are placed with the employee. Due to this shift in risk from the employer to the employee, there will never be an unfunded liability under a defined contribution system because there are no liabilities other than the initial contribution by employers.
