Government Workers Won’t Be Screwed by 401k Plan

Capitolwire has a story (subscription) on a recent hearing regarding switching from defined-benefit pensions to defined-contribution (401k) plans for state and school employees.  I was asked to respond to Steve Herzenberg’s quotes, “A big reduction in retirement security really isn’t a step forward”  … “You haven’t saved the state any money…” and with the proposed change, “You have transferred money to Wall Street from secretaries, teacher assistants, janitors and bus drivers.”  Here is my full reply (most of which made it into the story):

For starters, 401-k style defined contribution plans can be generous; Pat Browne’s bill (SB 566) would contain a 6% employer match, which is much higher than the private sector.

Second, the idea that it would “transfer money” from state and school employees to Wall Street is dishonest.  Taxpayers already pay for fund managers in SERS and PSERS, and the pension systems invest in mutual funds and hedge funds that pay (often with steep bonuses) their fund managers. 

Finally, those greedy slave-drivers at Keystone Research Center give their own employees a 401-k style retirement plan.  They recognize, as does all of the private sector and many lawmakers, that defined contribution plans are more affordable, predictable, current (i.e. impossible to pass costs onto future generations), and not subject to political manipulation.

The rebuttal from Herzenberg is that administrative costs in defined benefit plans are much lower than 401k plans.  Fact Check= MYTH.

Indeed, if you look at what PSERS and SERS spend know on administrative costs, you’ll find how laughable this is. As our senior Rick Dreyfuss wrote me recently, “Next time someone tells you about the high administrative costs of DC plans – show them this article.”

More info on pensions and defined-contribution plans can be found at