Outsourcing Pensions? (Sept. 7, 2009)

The government is outsourcing more traditional government activities to private sector entities that may never pay their pension and health care obligations to their employees.  Outsourcing is alleged to be cheaper, although in the long run it will be much more costly to the country.

Some employers promise a “defined benefit plan” to their employees that promises to pay a certain amount of money on a defined schedule.  This is a traditional retirement program. However, the promise is hollow if there is little or nothing to fund the obligation.  The programs are likely to be underfunded or unfunded because they rely on a growing economy and disciplined investing.  The private sector entities can simply dump the entity (“Fly By Night Government Services, LLC”) into bankruptcy and use section 365 to extinguish any pension and health care obligations without any civil or criminal consequences of any kind whatsoever to the entity or the individual owners.

Most employees and unions oppose a transition to a “defined contribution plan” that provides sums directly to or for the benefit of the employee to be invested by the employee pursuant to a “401(k)” or other program.  The virtue is that the funds are within one’s control; the vice is that the funds are within one’s control.  Only a small number of employees are talented or lucky enough to manage and grow the funds.

Many citizens are likely to discover that there is nothing waiting for them at the “end of the day.”  Trillions in unfunded obligations will overwhelm the Pension Benefit Guaranty Corporation.

[See the “e-ssay” dated April 14, 2008 entitled “Pensions and Other Entitlements:  Pt. 1” and the one dated April 28, 2008 entitled “Pensions and Other Entitlements:  Pt. 2” under the Category “Pensions.”]

Bumper stickers of the week:

“Promises of payment/Are neither food nor raiment”

What is a trophy wife?  A woman with vested Tier I state benefits.

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