In Defense of Defined-Benefit Pensions

Modest Reforms to State Plans Are Best Option for Taxpayers

Read the full issue brief (CAP Action)

Because many states’ public-employee pension plans are currently underfunded—meaning that current assets are less than promised retirement benefits—proposals to drastically reshape public-sector pensions or eliminate them in favor of 401(k)-style retirement plans are expected to once again be introduced this coming year in statehouses across the country. While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely.

Why? Because the defined-benefit pensions held by public employees are much more cost effective than 401(k)-style retirement plans, costing roughly half as much to provide the same level of retirement benefit to workers such as police officers and firefighters, librarians and teachers, and other public-sector workers. In short, the smart money in any state pension-reform plan would go toward smaller-scale changes.

Read the full issue brief (CAP Action)