Monday, February 20, 2006

Thankful I don't have a defined benefit plan

When companies decide to move from defined benefit plans to 401(k)s, the MSM always portrays the decision as one which screws over the employees. I am not surprised that they do, but it does make me wonder if journalists will EVER get a clue.

I am so glad that I don't work for a company with a DB plan. Of course, I studied economics in college.

Businesses pay workers for working. The company's cost is the entire expense associated with employing the worker. That includes the paycheck, the benefit package (including health and retirement), taxes, office space, furniture, safety expense, etc., etc.

If I weren't self-employed, I would want my employer to be able to accurately determine the cost of employing me. Open-ended health and retirement benefits which may not be incurred for many years and cannot possibly be estimated accurately put a huge burden on both the employer and the employee. Neither can effectively evaluate the pay package. Is it a good deal? For whom? Compared to what?

Increased risk is a cost. In this case, it is a cost to both employer and employee. It not only hampers each of them, but the overall economy as well. Without good information, people cannot make good decisions.

Stop for a moment and think how reckless it is for governments and companies such as GM to promise to pay health care costs for employees when they retire. They made and are making promises for which they cannot possibly predict the costs. The governments can always raise taxes (within limits) to cover the unanticipated costs. Businesses, on the other hand, cannot even know with any certainty if they will exist decades from now. Why would any sane employee agree to be paid for working today with retirement health benefits which may never be collectable?

Defined benefit plans and promises of retirement health care are a drag on our economy.


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