America's Pension Battle Heats Up
In an attempt to solve New Jersey's defined-benefit (DB) pension problem, Chris Christie proposed freezing public plans and moving workers onto cheaper ones—an idea that was quickly struck down by a judge. This back-and-forth illustrates the inability of public officials to agree on how to replenish the nation’s public pension funds. A number of factors—from investment shifts to unenforceable regulations to irresponsible politics—have driven public pensions into this hole, and there’s a rising sense that underfunding is approaching the point of no return. Even in the private sector, companies are shedding risk permanently by selling off their DB plans to insurers. Boomers are mixed on pension cuts, but Generation Xers balk at the prospect of funding plans with their tax dollars. One thing’s for sure: The DB pension seems increasingly out of place in today’s do-it-yourself culture.
Public pensions have been underfunded for decades, but in some states the situation has recently grown dire. The DB pension, where employers invest assets to fund a predetermined benefit formula, has been largely replaced in the private sector by…