Bill to End Defined Benefit Plans Under Consideration in Utah

In a welcome display of fiscal sanity, Utah state Senator Dan Liljenquist has proposed doing away with defined benefit plans for state employees. His proposal would eliminate such plans for new hires, effective July 1, 2011.

The Salt Lake Tribune covers the story in Retirement rumble ready to roll.

Depending on whom you talk to, the state retirement system that covers 182,000 current and former public employees is either a toxic mess, or a system that suffered a setback but doesn't need an urgent overhaul.

That disagreement -- surely to be one of the defining battles of the 2010 session -- will be thrust into the forefront in the coming days as Sen. Dan Liljenquist, R-Bountiful, plows ahead with his bills to restructure the retirement system, and the public employee unions push back with opposition from the thousands of members they represent.

The economic slump cost the state 22 percent of the pension fund's overall value and blew a $6.5 billion hole in the long-term needs.

The state can either keep pumping $400 million into the system -- enough to hire 8,000 new teachers -- or it can change the system to ensure its long-term stability.

A set of bills Liljenquist is proposing would essentially do away with the state's defined-benefit pension system for new employees. Instead, those hired after July 1, 2011, could either put 8 percent of their salary into a 401(k)-style program, or put part of it into a defined benefit pension plan with greatly reduced benefits.

Audry Wood, executive director of the Utah Public Employees Association, said everyone recognizes the damage done by the economic downturn, and they are not opposing changes, if they are needed. "What type of employees are you going to be able to recruit offering benefits like that?" she asks. "You're going to have crappy benefits and crappy pay?"

I propose Ms. Wood stand on the corner and hold up a sign "Workers wanted. No benefits" and see how many apply. For every qualified person that does, I propose firing one union employee.

Liljenquist's proposal would guarantee the benefits of all existing workers. The alternative is probable bankruptcy of the pension fund, all for the sake of future hires they have not even met.

"We are going to meet 100 percent of our obligations to current employees," Liljenquist said. "I can look my neighbor in the eye who's 15 years in [as a public employee] and say, 'I'm doing this for you.'"

Given the horrendous shape of Utah's pension plans, Liljenquist's plan is extremely generous. However, in a blatantly stupid act, the labor unions have a rally planned to protest the proposed changes. Unions always want more.

Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com
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