Chapter 10: Public Pensions in the Twenty-first Century
10. Public pensions in the twenty-first century The preceding chapters chronicle the development of public pension plans throughout the twentieth century. The history of public sector retirement plans shows that initially most public pensions began as disability or forced savings plans; while others began as awards to career employees given through special legislation enacted by the state legislature or, in the case of federal employees, the US Congress. By the middle of the twentieth century, the federal government and the majority of the states, as well as the country’s largest cities, had shifted to traditional defined benefit pension plans. Up until the mid-1970s, the development of public pension plans paralleled the dominance of defined benefit plans in the private sector of the economy. Beginning in the 1970s, employers in the private sector started terminating their defined benefit plans and converting them into defined contribution plans, especially 401(k) plans (Clark and McDermed, 1990; Gustman and Steinmeier, 1992; Ippolito, 1995). This process continued over the next 30 years. Today, defined contribution plans are the dominate type of pension offered by private employers. In addition, many firms that have retained a defined benefit plan have converted their traditional plans to cash-balance plans that, in many ways, are similar to defined contribution plans. In contrast, defined benefit plans still remain the norm in the public sector, as only a few states have terminated their defined benefit plans, and adopted a defined contribution plan as the sole, primary retirement plan for their public employees....
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