Andrew Biggs | Seven Days | Vermont's Independent Voice

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Andrew Biggs 
Member since Dec 20, 2016

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Re: “Walters: State Treasurer Refutes Scott’s Pension Idea”

From a budgetary perspective you can't really compare the contribution the state makes to employees 401(k)-style accounts to the 'normal cost' contribution the government makes to fund benefits earned by employees under a DB plan this year. Two reasons: first, the employer's 401(k) contribution is fixed as a percentage of pay, while the DB contribution varies based on the assumed rate of return on the plan's investments. If that assumed return is lowered, as it probably should be -- most pension investment analysts believe that a 6% return is more reasonable -- then the cost will rise. Second, if the DB plan's investments fail to achieve their assumed returns this year, then next year the state will have to make an additional payment to pay off the unfunded liabilities accrued this year. That's obviously happened in the past and generated high costs for the budget. Those unfunded liabilities, and the additional payments to cover them, can't happen with a 401(k)-style pension plan. So it's just not an apples-to-apples comparison.

2 likes, 3 dislikes
Posted by Andrew Biggs on 12/20/2016 at 12:35 PM

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