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Charlie Sykes: Sykes Writes

MONDAY HOT READ: THE END OF DEFINED BENEFIT

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 The fact is that not even the United States can afford expensive defined benefit plans. Michael Barone:

 

Defined benefit policies assume a static society. But we live in a dynamic society, and defined benefit policies cannot keep up with constant change.

Social Security and defined benefit pensions assumed that people wouldn't live very long after turning 65. Now we do. Medicare didn't provide a prescription drug benefit because prescription drugs weren't a big deal in 1965. It took 38 years before a prescription drug benefit was added in 2003.

Defined benefit pensions are now mostly a thing of the past, replaced by defined contribution pensions, which place some risk directly on individuals rather than promise them full protection, which turns out to be highly risky when big entities out of their control fail.

We need to adjust defined benefit public policies to shift some short-term risk to individuals while reducing toward zero the huge systemic risk that exists now.

Barack Obama seems to believe we can shore up these policies by taxing high earners more. But there's not enough money there to keep things going as they are, and a big tax increase on high and middle earners would increase the risk that our current sluggish economy becomes the norm. That's not a risk worth taking.

 

 

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