From a Letter to the Wall Street Journal
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Your Oct. 3 editorial “Pensions and Palm-Greasing” takes a local issue and generalizes it to the entire public pension industry. It also takes a savings tool—401(k) plans—and attempts to convert it into a meaningful long-term pension plan. The logic in both situations is flawed.
Most public employees participate in well-managed, well-governed, well-funded and closely regulated defined-benefit pension plans. These plans are governed by trustees charged with the fiduciary duty to oversee assets solely for the benefit of their membership. Conflicts of interest are clearly delineated and prohibited. Enforcement powers exist that can be invoked by fellow trustees, by the membership, by regulators and the public at large.
Local shortcomings in New York State can be addressed by implementing best practices and best program designs exhibited by other public plans found through the U.S.
The call to convert successful and effective traditional pensions to 401(k)-style defined-contribution plans so as to avoid overreaching by politicians is counterproductive and naïve. Traditional pensions have proven themselves to be effective in providing financial security to persons no longer willing or able to work. They work to attract and retain professionals providing needed public services. Public defined benefit plans provide retirement benefits at a cost lower than 401(k) plans and a greater positive impact on the local economy than defined contribution plans.
Your proposal is naïve as well. There is no fool proof method of avoiding overreaching when hundreds of billions of dollars are to be accumulated and invested. The abuses would most likely not be as readily apparent with a 401(k) plan, but they would be there none the less. Could not politically directed payments arise from managers selected to manage defined contribution accounts or act as third party administrators?
America needs a coherent, effective retirement policy that respects the work rendered by retirees and which allows for independence in their old age. That policy, if it is to be successful, is predicated on personal savings—like a 401(k) style program; on a traditional employer program (like the defined benefit plans offered in both the private and public sectors) and the federal Social Security program. Unless you are independently wealthy, this three-pronged approach is the best chance for financial independence. That to my mind is a worthy approach for a worthy goal.
CDOBs Editors says:
This is a particularly offensive letter coming from an organization that has managed to wrangle multiple early retirement programs out of various levels of Illinois Government.
Illinois is deeply into a Pension Crisis, which Kosiba completely ignores in his letter. Is it really "counterproductive and naive" to remove control of Illinois Pensions from Governor Blagojevich, who has dipped into the pensions funds of State Employees whenever he feels a budget crunch?
Shifting the fiduciary duties from the State to a private retirement management fund gives a buffer to employees against the whims of politicians out de-fund pensions and a buffer to taxpayers agains the penchant for politicians to buy the votes of State workers.
People tend to allocate resources more responsibly when they are accountable for their decisions. Moving to private pensions and 401K types of plans is exactly what is needed as a first step against the pension abuse which is rampant in our State.