How can the generous pensions of the public sector be sustained while the private sector pensions evaporate?
Federal pensions in 1984 went through what some companies were going through in the 1990s. All employees hired after 1984 were given half the pension of prior employees and a 401(k) type plan was put in place for people in the new plan or who switched from the old plan to the new plan. Pensions are evaporating for two or three reasons. The first is that medical cost to employers is too much and something has to be cut. The second is that younger employees (incorrectly) see that a 401(k) with market returns is better than a guaranteed lifetime income. The third is that pensions were kept in place because of the power of unions. Even for managers or a non-union company pensions had to be offered to be competitive with union companies. 401(k)’s are more generous to younger, newer employees than most defined benefit pension plans. Either plan can be designed to be generous or stingy. The most generous part of the federal retirement system is the annual cost of living increase. For the new
