February 18, 2010

Editorial Board Orlando Sentinel 633 N. Orange Avenue Orlando FL 32801

Mike Thomas gets one thing right in his Feb. 13th column, State Pensions: Bad deal for Public, in that he

seems to have some grasp of the defined benefit pension concept. Where he goes wrong is arguing for

401(k) style accounts as the best alternative to defined benefit retirement plans; but he goes deep into foul

territory by implying that public employee pension benefits are responsible for Orange County’s fiscal

woes or a threat to taxpayers.

Thomas fails to inform readers of critical information about retirement benefits of both types,

choosing to ignore facts that show 401(k) style accounts have significant limitations in providing security

for retirees, and offering much higher financial risk, as well as hidden costs for taxpayers.

The 401(k) account was never intended to serve as a lifetime retirement security. It was designed

as a lucrative tax-deferred compensation benefit for executives who could afford to contribute significant

sums of money while still living comfortably. In the private sector, large corporations eventually took

advantage of two convergent trends: a bull market and the “irrational exuberance” of people clamoring to

manage their own investment funds, to convert to a defined contribution, or 401(k) account model. It’s

been a bad deal for private sector workers.

Most workers now depending on this type of savings plan cannot afford to contribute sufficiently

to get the job done, and most companies have largely eliminated the practice of matching employee

contributions. These private accounts are often poorly funded and poorly managed and the 2008 stock

market crash stripped millions of retirees of their life savings. In fact, the Professional Asset-Managers

and Record Keepers replied to a 2009 inquiry by TIME reporter Stephen Gandel, to say that the average

401(k) had a balance of just $45,519, and 46% of all 401(k) accounts had less than $10,000.

Thomas also failed to do his homework on the issue of funded and underfunded pension plans. A

pension plan that is 80% funded is a pension plan that actually could pay 80% of its entire benefits

commitments right now. Florida’s public pension plans are among the best funded plans in the nation. A

report published by the Pew Center on the States and released on February 18, 2010 lists all the

underfunded state pensions and Florida is not on the list. This is not California.

Thomas’ call to “spread the risk” of retirement security more evenly by shifting the burden to

individuals fails to recognize that the real strength of defined benefit plans is their ability to operate in

perpetuity because the entire workforce will never retire all at once. Moreover, only public pension plans

cover taxpayers on the cost of disability and survivorship benefits so necessary to first responders like

firefighters and police officers. Those benefits would cost taxpayers more money if purchased separately.

Let’s stop perpetuating the “haves and have-nots” debate and look at ways to provide retirement

security for everyone without demonizing public employees in the process.

Raymond Edmondson, Jr., CPPT Chief Executive Officer Florida Public Pension Trustees Association Pioneering Education for Trustees & Administrators for 25 Years