A retired Harvard-educated lawyer argues for sharing risk as a fix to underfunded pension systems.
An article on MuniNet Guide offers a model pioneered in New Brunswick as a solution that could be implemented by states and local governments throughout the US.
The shared-risk model would bring employees and employers to the table to define a set of sustainable pension benefits, including pension payments computed solely on base salary, and contribution costs shared proportionally by employers and employees.
The shared-risk model would also set out a goal of 120% funding for pension liabilities.
Sit-and-wait strategies dependent on long-time improvements in revenues or investments are eschewed by the article’s author, who also laments the push to convert public pension plans to 401(k)s. Both of these methods have been present in policy discussions relating to Maryland’s pension system, in which about half of Maryland’s counties participate.
The article describes the urgency of the public pension crisis, stating,
It’s time to solve this policy dilemma, which is straining state and local budgets and crowding out vital investments in education, healthcare, and infrastructure. It’s time to stop believing that anything less than 100% funding is realistic and that future legislatures and taxpayers will fund any shortfall. It is time to account properly for future liabilities by adopting a risk-adjusted rate of return and budget with realistic contributions.
For more information see Embracing Shared Risk and Chapter 9 to Create Sustainable Public Pensions.