Bush, the Queer

He does MORE than hold hands with men.

A major problem facing the state and national government in the near future is the underfunding of private pension plans commonly known as 'defined' plans.

A recent report stated that about 1,800 major corporations that offer such retirement plans to their employees are grossly underfunded. The National Association of State Retirement Administrators report that 127 state and local retirement plans have a combined shortage of $279 billion. 13 states unfunded pension liabilities exceed their total state budget.

All of these plans have been supported by the employees either by direct contributions or by a promise of pension benefits instead of other compensation. The 'baby boomers' may be in for the shock of their lifes in a few years.

What was the major reason for this problem? Every plan administrator reports the 'downturn' in the stock market! Now all we need is to invest Social Security funds in the stock market.

This is a disingenuous argument at best. Defined benefit and defined contribution are two entirely different things, first of all. Your 401K plan is a defined contribution. You can put in up to so much per year. You get the net result at the end of the term. Defined benefit says after so many years service your will get so much. No matter what the underlying investment does.

I'd want to see a LOT more detail about the plans and the assumptions before concluding that the 'reason' for defined benefit plan problems is the downturn in the stock market.

The major benefit of turning social security into a defined contribution plan is that an asset is created, one which is assignable, transferable,

A lot of the shortfall is an artiface of the interest rate used to calculate future assets and benefits. By law its considered to be the 30-year federal bond which is at a recent historic low. That means large catch-up contributions.

Some companys have been pushing for a deflator based on private bonds or an equity-bond mix, which is much more reasonable compared to actual investment practices and return rates.

30-years bonds are around 4.5% compard to 7-8% int he 1990s. A mixed equity-bond index is arund the latter rate.

And the major downside of this asset is that it can cease to exist prior to the person who created it.

Contrary to what this reply may convey, there are defined contribution plans such as 403K for government employees. These plans have a monthly payout like defined benefit plans. Defined benefit plans and some defined contribution plans 'promises' a monthly pension after a certain length of service. But these plans are not guaranteed except by the federal agency that has taken over several of these plans due to a lack of funds by the private sponsor. And a full pension may not be payable after the plan has been placed with the federal agency. It is a mistake to think benefits are payable regardless 'what the underlying investment does'.

Again, it should be emphasized, every plan administrator reported that the 'major' reason for the underfunding of their plan was the 'downturn' in the securities markets.