Local View: The failure of 401(k)s

2012-08-01T23:57:00Z 2015-02-03T09:55:50Z Local View: The failure of 401(k)sBY DAVE ENGLER JournalStar.com
August 01, 2012 11:57 pm  • 

City Councilman Jon Camp has suggested that transitioning police and firefighters from a defined benefit plan to a defined contribution plan makes sound financial sense. In fact, such a drastic change would create problems -- for the city and its employees.

Contrary to Camp’s argument, the firefighter and police pension fund is not unsustainable. By every independent measure, the fund is fiscally healthy.

As recently as 2008, the Lincoln Police and Fire Pension Fund was 100 percent funded. Today, it is 81 percent funded, and the reduction is due to the devastating recession our nation has experienced. As the market recovers, so will the pension fund.

There is no reason to fix what is not broken, and Camp’s claim that there is a problem is as inaccurate as it is disingenuous.

The amount of taxpayer dollars that go into the firefighter and police fund is limited, with nearly 80 percent of the money going to our pension funds coming from our own paychecks and investment earnings.

The maximum benefit under the current plan is a modest 64 percent of regular pay. And that money goes back into the community when retirees buy food, cars and other goods.

In fact, making the transition from a defined benefit plan to a defined contribution plan would cost money, which seems to undermine Camp’s intent here -- to save money. Closing a defined benefit plan and funding a new defined contribution plan will increase costs to the city for no fewer than 15 years.

It’s also important to note that the number of people criticizing defined contribution plans -- more commonly known as 401(k)s -- is growing. It is widely accepted that 401(k)s are failing to provide for those who reach retirement and pushing people into poverty. The poverty rate was nine times higher for older retirees without a defined pension plan in 2010 than for those with one, according to the National Institute on Retirement Security.

Is this what we want to do? This will have the unintended effect of increasing the number of people on state and federal aid. The truth is that 401(k)s never were intended to be a person’s sole source of retirement income. Rather, they were intended to supplement Social Security and a defined benefit retirement plans.

But in Lincoln, firefighters and police officers don’t receive Social Security, and our pensions are our only source of retirement income.

Despite Camp’s attempt to raise a red flag, his warnings about a crisis are unfounded. The only concern should be over the solution he has proposed.

Dave Engler is President of Lincoln Professional Fire Fighters Local 644.

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