In a recent Huffington Post article that sets the record straight on public employee pensions, Harold Schaitberger, the general president of the International Association of Fire Fighters (IAFF), tackles five of the biggest myths about defined benefit pensions.
Schaitberger starts by debunking the claim that most if not all pension plans for state workers are facing a crisis due to massive unfunded liabilities. “The concept of an ‘unfunded liability’ is misleading because pension benefits are paid out over decades,” writes Schaitberger. “A mortgage represents a good analogy. Imagine newlyweds, both of whom work, buying a $300,000 home and putting $20,000 down. The $280,000 they owe represents an unfunded liability, but like pensions, that money is not due all at once. It is due over 30 years, under the terms of a typical loan agreement.”
Schaitberger explains how opponents of public employee pensions have skillfully portrayed pension liabilities as a bill that is due today. “If homeowners had to pay the full cost of their home at the time of purchase, 99 percent of us would be renting,” says Schaitberger. “But homeowners don’t have to pay for the homes all at once, so it’s very misleading to portray pension funds in that light because pensions are paid to retirees over many decades.”
“The real retirement crisis is not in the public sector. It is in the private sector,” says Schaitberger. “The average 401(k) balance today is just $71,500, according to Fidelity Investments. Americans whose retirement security relies on Social Security supplemented by such small balances in 401(k)s must consider how they will avoid falling into poverty in their retirement years and states will need to figure out how they will provide welfare to those who do.”
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