HOUSTON - There’s no running away from the pension problem in Houston and many other cities.
According to the Wharton School of Business at the University of Pennsylvania, there is $3 trillion in unfunded pension debt at the state level nationwide.
That translates into $400 billion among major cities. That’s about $10,000 per every American citizen.
Many of us may think of our parents or grandparents when we think of pensions. It’s a retirement plan better suited for employees who stay with the same company for many years, if not entire careers.
Pensions are still prevalent for government employees like those working for the City of Houston.
The private sector preference has long been 401(k) style plans.
A pension is what’s known as a “defined benefit plan.” It guarantees a given amount of income for retirement. The investment risk is on the plan provider, such as a city.
A 401(k) is a “defined contribution plan.” Employees choose their own investments with no guaranteed benefit. Thus, the employee assumes the risk.
The US Labor Department’s Employee Benefit Research Institute reports that private sector participation in pensions has steadily declined over the last three decades while 401(k) participation has risen. Others have hybrid plans.
Poor stock market performance and an inability to reign in generous payouts has put cities and other government entities in a pinch. In many cases, experts warn that without reform comes severe uncertainty, including potential bankruptcy.
(© 2016 KHOU)