There may be nine fallacies used to defend public-sector pensions but Dr. Jason Richwine of the Heritage Foundation propagates one major fallacy used to attack them when he avers:
Primarily because DB benefits are guaranteed to workers while DC benefits are not, public-sector retirement benefits are almost always more generous than those of comparable private-sector workers.
Nothing could be more misleading……or dangerous.
DB Benefits are certainly not guaranteed to all public employees. Check with retirees in Prichard, Alabama or Central Falls, Rhode Island or Colorado or Minnesota or New Jersey. In the public sector DB promises are only as solid as the ethical fiber of the politicians making them and the judges enforcing them.
The argument against DB plans is not that they are more generous* but rather that they are susceptible to severe undervaluation since all the stakeholders (taxpayers, actuaries, politicians, and even public employees) have their own incentives to believe DB costs are lower than they actually are. This allows benefits to grow to unsustainable levels where the only alternative available would be to welch.#
* A DC plan calling for 50% of salary to be deposited into a participant’s retirement account would be more generous than DB accruals for all but the most blatant pension-padders who are either very close to retirement age or only taking token salaries to build up service credits.
# Possibly the next innovation in actuarial science in the ongoing quest to lower contribution amounts (e.g. asset smoothing, open- amortization periods) is to factor in the probability that a government would renege on the promised DB benefits. We are certainly building up enough data to support a welch factor.