The Wall Street Journal editorial page recently waxed rhapsodic about Utah, which has replaced a defined benefit pension plan for new state and municipal workers with a 401(k)-style plan.
In Utah, new state and municipal employees can choose to: receive an amount equal to 10%-12% from the state as a contribution to a private retirement account, and contribute an additional 8%; or receive up to 10% contribution to a private defined benefit plan with less generous benefits than the existing plan, with the employee bearing the responsibility for contributing anything above that. Under both plans, the employee decides how to invest the funds (and bears the entire risk if those decisions are poor ones).
The result is that Utah taxpayers no longer bear the responsibility of paying defined benefits to retirees for life, regardless of how the state pension fund fares in the marketplace. The reform was triggered when the 2008 market crash caused Utah's pension fund to lose 22% of its value.
According to the WSJ, "The reform has benefits for taxpayers and public employees. Workers own their own retirement account and can carry it to another job. They also benefit because politicians can no longer steal from the pension plan to pay for other government spending. As for taxpayers, the reform will eventually slash state pension liabilities in half and they no longer bear the risk of having to pay higher taxes if the stock market declines."
Shockingly, to the WSJ, union leaders resisted. Apparently, union leaders feared the dissolution of a public safety net for retirees. And the slashing of other social programs which had been financed by leveraging the state pension fund.
The WSJ editorial was widely quoted across the internet, giving legitimacy to the pension reform echo chamber. It won't be long before we hear Governor Christie start beating the same drum.