Posts Tagged ‘401k inefficiencies’

So Who Pays For Teachers’ Pensions? Uh, That Would Be Teachers.

Friday, February 25th, 2011

Pensions are deferred compensation.  Funny how it’s a secret to so many, including the Governor of Wisconsin and most journalists. 

Award winning journalist David Cay Johnston writes an excellent article about pensions at tax.com.

Here’s part of the article:

“Out of every dollar that funds Wisconsin’ s pension and health insurance plans for state workers, 100 cents comes from the state workers.

How can that be? Because the “contributions” consist of money that employees chose to take as deferred wages – as pensions when they retire – rather than take immediately in cash. The same is true with the health care plan. If this were not so a serious crime would be taking place, the gift of public funds rather than payment for services.

Thus, state workers are not being asked to simply “contribute more” to Wisconsin’ s retirement system (or as the argument goes, “pay their fair share” of retirement costs as do employees in Wisconsin’ s private sector who still have pensions and health insurance). They are being asked to accept a cut in their salaries so that the state of Wisconsin can use the money to fill the hole left by tax cuts and reduced audits of corporations in Wisconsin.

The labor agreements show that the pension plan money is part of the total negotiated compensation. The key phrase, in those agreements I read (emphasis added), is: “The Employer shall contribute on behalf of the employee.” This shows that this is just divvying up the total compensation package, so much for cash wages, so much for paid vacations, so much for retirement, etc.

The collective bargaining agreements for prosecutors, cops and scientists are all on-line.

Reporters should sit down, get a cup of coffee and read them. And then they could take what they learn, and what the state website says about fringe benefits, to Gov. Walker and challenge his assumptions.

And they should point out the very first words the state has posted at a web page on careers as a state employee (emphasis added):

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    • The fringe benefits offered to State of Wisconsin employees are significant, and are a valuable part of an individual’s compensation package.

Coverage of the controversy in Wisconsin over unions collective bargaining, and in particular pension plan contributions, contains repeated references to the phrase “contribute more.”

The key problem is that journalists are assuming that statements by Gov. Scott Walker have basis in fact. Journalists should never accept the premise of a political statement, but often they do, which explains why so much of our public policy is at odds with well-established principles.

Beezer.  One can say that teachers are overpaid, or overcompensated.  But one cannot say that they must contribute more to their pensions, or their health care benefits, because they contribute everything that’s put into both types of benefits because it’s deferred compensation.   Read the article.  It has some good information about the efficiencies of defined benefit pensions vs 401ks, IRAs and all the rest of the retirement account types.




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