Notwithstanding the fact that “adjustable defined benefits” might constitute an oxymoron, as a concept it represents the only way that defined benefit plans can be sustained. Rather than throwing new employees into individual 401K plans, while they effectively subsidize legacy defined benefits for veteran employees and retirees, why not adjust defined benefits down to a financially sustainable level and let everyone participate?

Let’s set aside for a moment the debate over whether or not defined benefit plans are just fine the way they are, and can survive with merely incremental refinements – eliminating spiking, raising contributions a bit, bumping the retirement age a few years. Those solutions buy time, but unless the investment market roars for another 30 years, they will not solve the problem. And in the context of equitable policy, that debate is moot, because if these plans are just fine, than nobody should object to reforms that will make benefits adjustable if and when they are no longer fine.

Three good examples of how adjustable defined benefits can be implemented are the proposed “… Read More

Professor Barnhardt: “So it was only when your world was threatened with destruction that you became what you are now?”Klaatu: “Yes.”Professor Barnhardt: “Well that’s where we are. You say we’re on the brink of destruction and you’re right. But it’s only on the brink that people find the will to change. Only at the precipice do we evolve.” -The Day the Earth Stood Still, 2008

One might paraphrase Professor Barnhardt’s plea, excerpted from the 2008 movie potboiler “The Day the Earth Stood Still,” to suggest that pension plans will evolve once it is clear to a sufficient number of participants that they are truly on the precipice.

In the private sector, where fewer laws shield employers and their workers from financial reality, evolution is well under way. And what has emerged is is a mutation of the Defined Benefit Plan that preserves many of its virtues, while avoiding most of the financial risks. Being pioneered by the east coast actuarial consulting firm,Cheiron, Adjustable Pension Plans can be structured in various ways, but all of them share certain… Read More