Facing losses of $8 billion at the end of fiscal year 2011, the United States Postal Service is looking to adopt a defined contribution retirement plan in order to generate cost savings. It’s yet another example of government turning to private sector solutions to finance budgetary shortfalls. The article in its entirety can be found here (registration required).
As Postmaster General Patrick Donahoe stated, “We need the ability to operate more as a business does.” Shifting new hires to a defined contribution retirement system would streamline USPS with most private sector companies, which already heavily utilize defined contribution plans. While USPS is stuck in dire financial straights, this crisis has allowed for serious conversations to take place about real public pension reform. It’s a conversation that needs to happen in more places.
Just like USPS, many state public employee pension funds have struggled financially in recent years. A turbulent stock market, coupled with poor financial management, has left defined benefit retirement systems bloated with billions of dollars in unfunded liabilities. The prospects of taxpayer bailouts for these failing systems is becoming more of a reality every day. USPS clearly sees that direct contribution systems are a better, safer, and more cost-effective solution.
As demonstrated in the Buckeye Institute’s report, The Impact of Shifting Ohio State Workers from Defined Benefit Plans to Defined Contribution Plans, long-term savings totaling billions of dollars can be realized by transitioning to a defined contribution plan. Defined contribution systems free taxpayers from the burden of unfunded liabilities and protect against future taxpayer bailouts.
Any state that is serious about putting its fiscal house in order must look at its pension obligations. A choice must be made. Do we continue to follow the path that has run up billions in liabilities that we and our posterity must pay? Or, do we make responsible reforms that ensure long-term, cost-effective retirement security for all public employees? USPS has gone to the brink of bankruptcy before choosing reform; let’s not let Ohio go that far.