Is defined contribution a code word for a second-class pension?
BOLING: Let’s say in San Diego right now on average our rate, never mind the unfunded liability but just our normal rate, is around 13 percent of payroll. One could choose to have 13 percent of payroll be the contribution into the employee’s plan. So it isn’t necessarily going to result in a lower pension. In fact, depending on how the assets were invested, it could end up in a higher pension. RICHMAN: With STRS the contribution currently from the employer is 8 percent. Under our legislative proposal we allowed a maximum employer contribution in the defined contribution plan of 9 percent. Certainly in San Diego we’re seeing that the guaranteed pension is not so guaranteed. United Airline workers are discovering the same thing. The city of San Diego is looking at bankruptcy or other scenarios to get out of that guarantee. So, if the defined benefit plan is structured as it has been in San Diego, it is not so secure. Don’t these physical problems undermine the concept? LOW: Absolutely. T
