A newspaper article recently wrote of the efforts in many states to move from a defined benefit type pension to a defined contribution type plan. Our most recent report points out the differences in these two models and shows that statewide, as well as in Allegheny County, defined benefit plans are far more predominant in the public sector.
Most places that have switched or are contemplating a switch often target it to new employees, and that’s due to language in many state constitutions that prevent abrogating contracts like pensions where people are vested. A 2009 report by the National Conference of State Legislatures showed that three states and the District of Columbia had closed down defined benefit plans and offered defined contribution plans as the primary option while six other states had a defined contribution plan as an option.
An analyst with one of the major bond rating agencies said in the piece "It is no doubt the proper thing over the long term to…consider reforming the level of benefits…[however] it’s not to be forgotten that these existing benefits don’t just go away."
A micro-level example is the retiree health care benefit in the City of Pittsburgh that was closed to new entrants hired on or after January 1, 2005. The 2009 Controller’s report shows an unfunded liability of $359 million as of January 1, 2008. The next CAFR will have an updated number but the City contributes around $20 million a year on a pay-as-you-go basis for its retiree health care liability.
