Retirement Benefit?

Is the 401(k) good for what ails us?

Recent discussion of municipal finance has focused on pensions. It seems that the State of New Jersey lied to investors when it masked the massive underfunding of its two biggest pension plans. Because of Article X of the U.S. Constitution, the Federal Government cannot sue a state. But that doesn’t mean that they can’t investigate fraud!

But New Jersey’s fraud is one thing. Underfunded pensions are another. Around the country, state pensions are underfunded by some $500 billion, according to their own accounting. But that probably understates the problem by $1 trillion or so. Thank goodness we live in New Hampshire. We’re only underfunded by some $4 billion. Since our state has a $60 billion economy, the 7% funding gap isn’t so far from NJ’s 10% gap. Hmmm.

So maybe state workers ought to have their own plans. Most of the rest of us do. Since lifetime employment hasn’t been part of the employment landscape for a long time, the 401(k) allows us to build our own retirement nest-egg and carry it with us from employer to employer. How about we give State employees the same privilege? We can’t do anything about folks who have already retired. But we could keep the problem from getting bigger by bringing state employees into the 21st century.

When you’re in a hole, the first rule is, stop digging. If our pension plans are underfunded, we ought to come up with a way to stop the problem from getting worse.

Douglas R. Tengdin, CFA
Chief Investment Officer
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