That famous line from Dickens’ Oliver Twist changes the life of the protagonist, the little orphan boy, forever. In the U.S., it’s also working its magic by orphaning us from our traditional values of achievement and self-reliance. It has been institutionalized in the public and private sectors in the form of defined benefits.

To many people, too many judging by the state of our economic affairs, defined benefits are nothing more than a pension. People have paid in and expect to get paid back on retirement. As usual, the devil is in the details: With defined benefits a guarantee is made to pay out a fixed amount of money, possibly even adjusted for inflation, for the remainder of the employee’s life. Sometime health care benefits are included. The problem is, this guarantee is made regardless of the state of the pension fund making the promises and the payments, or the value of the payout relative to the pay-in. Such guarantees are usually tied to the length of employment (say, twenty or twenty-five years), allowing the worker to retire as early as their forties or fifties. With the state of modern health care, these individuals are likely to live another thirty or forty years, or longer, with resultant payouts far exceeding the buy-in. In the case of the public sector, where this practice appears to be the most widespread, the net result is that the taxpayer foots the bill for the burgeoning phalanx of able-bodied retirees that continue to live off the public dole while either seeking re-employment in the private sector or enjoying the good life. Meanwhile, the taxpayer assumes his or her own retirement risk as well as that of the ex-worker. Added to the expense of all the social programs, is it any wonder that the government is imploding under a mountain of crushing debt?

In the private sector, this type of pension is foisted on the rest of us by aggressive union negotiations. In one of the most prominent examples, General Motors would have gone belly-up under the weight of its retirement obligations if it weren’t for the arrival of the cavalry in the form of the federal government and its sponsor, the ever-beleaguered taxpayer.

I’m not implying that the beneficiaries of this misguided form of pensioning are bad people or engaging in wrongful behavior; they simply did what was asked of them and are getting what was promised. What I am saying is that they are living off the largesse of an inherently flawed, unsustainable system that must be reformed. It has the same drawbacks that tenure has in academia (although that’s a rant for another day). The country would be in a far better place if people were stewards of their own retirement funding, and their money was in a “lockbox” subject to investment decisions of their choice.

We need to end defined benefits. It’s time to stop making promises we won’t be able to keep.

Next: The government’s version of defined benefits—a Ponzi scheme?


Tags: , , , , , , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s

%d bloggers like this: