Governor’s Race: Who’s Got the Best Pension Plan?
Friday, October 08, 2010
$4.4 billion unfunded liability, the troubled state pension system is one of the biggest issues the next governor will face. So what are the candidates going to do about it? Each of the four major contenders has released a detailed plan on how they would fix the system. In the below table, GoLocalProv has broken out the key elements for an easy comparison.
A key dividing line in public pensions is between defined benefit and defined contribution plans. Traditionally public pensions have defined benefits—public employees are entitled to a benefit regardless of whether the state makes its annual payments into the system. In the other kind of plan, the amount put in is locked in—but the amount of the benefit is guaranteed. A 401(k) is often cited as an example of the latter.
Some say a defined contribution plan, or 401(k)s are better for the state budget since they about massive unfunded liabilities down the road. But critics raise concerns about the stability of benefits under a defined contribution plan.
Three of the candidates go for some kind of a hybrid between 401(k)s and traditional pensions— independent Lincoln Chafee, Democrat Frank Caprio, and Republican John Robitaille. The plan weighed most heavily toward 401(k)s is the one proposed by Republican John Robitaille. Surprisingly, pro-business Moderate Party Ken Block would not introduce 401(k)s. Instead, Block would maintain a full public pension program. But, the catch is that he would modify how benefits are calculated, based such factors as retirement age or cost of living adjustments, or COLAs.
So how do their plans compare?
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