Make pensions a defined-contribution program

Published October 1, 2012

In response to “Low investment returns test S.D. budget” (Government & Politics,, Sept. 26): In states and municipalities across the country, the high cost of traditional defined-benefit public pensions has become a hot-button issue as unfunded liabilities have raced out of control. These increasing liabilities are further complicated by the fact that in many instances, the regulators controlling pension funds have overestimated the value of future investments and the rates of return they can expect from the investments held by the pension fund. San Diego’s current investment shortfall is a matter of concern; it proves that the expected rate of return may be too high and that the rate needs adjusting. If the estimated rates of return for these pension funds continue to fall short of expectations, then the city’s pension system may be in even more trouble than is currently thought. Significant reforms are needed to bring public pensions back into the black. In the short term, per-year pension payouts should be capped at a sensible level, the retirement age should be raised, double-dipping should be eliminated, estimates of rates of return should be changed, and workers should be required to make higher contributions. Long term, governments must follow the private sector’s lead and switch workers from a defined-benefit pension system to some type of a defined-contribution system. – Matthew Glans, senior policy analyst, The Heartland Institute, Chicago