Much has been written about the public pension problem, but not enough has been written about who is and is not responsible, and who are the victims.
Let’s agree that retirement security is a good thing and lacking for far too many Americans. In the public sector, that security is provided via defined benefit pension systems.
They can work perfectly well when enough money is set aside at the time the promises are made, so that, combined with investment earnings on those set-asides, enough money is in place when workers retire. The key is to set aside enough up front.
Establishing the level of those set-asides is similar to determining how much to save for your new baby’s college education. In that case you make a reasonable estimate of investment yields and then contribute enough money so that there will be enough when your child goes to college. If you’re conservative and assume a realistic rate of return, you will know with a high degree of certainty that the amount needed will be there. But if you assume an unrealistic investment return, you’ll set aside too little and risk your child not being able to attend college.
