Move Public Employees Into 401(k)s?
Introduction
Gavin PotenzaPublic employees in Wisconsin and other states are being asked to contribute more toward their pensions. But in some states, like Florida, there are proposals to shift new government employees from the traditional pension plans to 401(k)-style investments.
Polls in a number of states show popular support for this idea. In California, a January 2010 survey showed that 70 percent of likely voters — including 61 percent of Democrats — favored changing government retirement benefits from pensions to 401(k)-type plans.
The private sector has all but abandoned traditional pensions, which are defined benefit plans, to 401(k)s, which are defined contribution plans. Surveys have shown that many workers in 401(k)s have not saved enough for retirement. According to research cited in arecent Wall Street Journal article, for example, "the median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement."
What would be the consequences of a shift to 401(k) plans for public employees? What have we learned from the private sector's experience?
Polls in a number of states show popular support for this idea. In California, a January 2010 survey showed that 70 percent of likely voters — including 61 percent of Democrats — favored changing government retirement benefits from pensions to 401(k)-type plans.
The private sector has all but abandoned traditional pensions, which are defined benefit plans, to 401(k)s, which are defined contribution plans. Surveys have shown that many workers in 401(k)s have not saved enough for retirement. According to research cited in arecent Wall Street Journal article, for example, "the median household headed by a person aged 60 to 62 with a 401(k) account has less than one-quarter of what is needed in that account to maintain its standard of living in retirement."
What would be the consequences of a shift to 401(k) plans for public employees? What have we learned from the private sector's experience?
