Promises Will Be Broken: Public Pension Reform Movement Grows

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In 2008, our November cover story argued that workers (espcially public employees) who were planning on enjoying generous pension benefits promised them were in for a rude awakening. We talked to advisors about how they were coping with this great unknown. (Their answer: They were discounting heavily DB plan promises, sometimes on the order of 35 percent or more.) We concluded: "Promises will be broken." Now the Tax Foundation reports that California is joining the pension reform movement, stating it ain't got the dosh to make good on its future promises.

Says the Tax Foundation: "California's bipartisan Little Hoover Commission issued a report [last] week urging a reduction in public pension payouts and taking steps away from the defined-benefit structure. From their report: 'In its study of public pensions, the Commission found that the state’s 10 largest pension funds – encompassing 90 percent of all public employees – are overextended in their promises to current workers and retirees.'"

As it is, the net present value of the government's future obligations is already around $56 trillion. The problem, according to the Peter G. Peterson Foundation: We haven't got that kind of money. I think that if we don't reform entitlements and public pensions, we'll all become tax slaves to fund the relatively lavish pensions of public employees and the gazillion baby boomers who enjoy government-sponsored entitlements that likely won't be there for the younger crowd. Is it fair that private sector employees mostly have to save for their retirements while government employees get DB plans?

What do you think? And how, as a financial advisor, do you build a financial/retirement plan for those clients with DB plans which are now in jeoprady?

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