Tuesday, March 23, 2010
Terminate Government Pension Plans
Government must get lean during recessions. Our cost structures need to be pared down to match revenues. This is the new normal and could last for years. Defined Benefit Pension Plans should be terminated and replaced by Age-Weighted Defined Contribution Plans. The deficits forced on government are the direct result underfunded pensions, excessive spending and reduced revenues. The stock market crash killed the pension plan balances. Even with the stock market partial recovery, it remains at 70% of it’s high. The 90% of salary after 30 years of service Pension Plans are the worst. In a Pension Termination, the Trustees are empowered to terminate the Pension Plans. They are also responsible for communicating the replacement Age-Weighted Defined Contribution Plans. Employees are given the option to take a lump sum from the Pension Plan and pay taxes on the distribution or transfer their balances to the new plan untaxed. Employers usually donate some annual percentage of payroll to the Pension Plan. In the private sector, it was around 5% of payroll. Whatever that average is (discounting stock market slumps) can be offered as the next years’ contribution, beyond that, it’s a year to year decision. This has a positive effect on employees’ commitment to continue to eliminate waste and remain within budget, because they know a bad year could result in a reduced employer contribution. State and local government cannot sustain the current cost structures required to pay government operating costs. Labor costs need to be brought more in line with the private sector. Healthcare and Education are way over-funded by the State. There should be a concerted effort to reduce these expenditures.
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