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Pension Promises Without Funding Are Mere Dreams


To paraphrase a recent Forbes article, poorly-funded defined benefit pension plans are a poor substitute for individual account retirement savings plans.1

Recently, I posted an item titled Mind the (Wealth) Gap to once more challenge the oft-repeated claim that 401(k) plans are inadequate when compared to defined benefit pension plans (DB pensions).2

I mentioned that many DB pensions are underfunded. For example, the Massachusetts State Employees Retirement System (MSERS), as of the Jan. 1, 2018 valuation, is 64.9% funded, with more than $26 billion in assets and more than $14 billion in unfunded liabilities.3 This specific DB pension was adopted in 1911 and the benefit promises are not scheduled to be fully funded for another 20+ years in 2040.

Three times that week, I was reminded of the funding deficiencies in many DB pensions:

  • First, when the House passed and the Senate reintroduced the Butch Lewis Act authorizing taxpayer-backed loans to fund multiemployer pension funding deficiencies,
  • Second, recent studies that suggest that public pension plans use “rosy assumptions” to overstate funding and understate future taxpayer burdens to fund generous benefit promises,5 and
  • Third, I was preparing for a conference presentation; at the same conference last year, I highlighted the specific value of “funding” individual account retirement savings plan commitments.6 

Add to those developments the funding status of Social Security, our taxpayer-funded “DB Pension.”7

Again, pension promises without funding are mere dreams.

1C. Weller, How The Decline Of Pensions Furthered The Racial Wealth Gap, Forbes, 7/24/19, Accessed 7/26/19 at:
2J. Towarnicky, Mind the (Wealth) Gap, 7/26/19, Accessed 7/27/19 at:
3MSERS at a glance, Accessed 7/27/19 at: See also: Boston College Center for Retirement Research, State and Local Pension Plans. “A key element in the projected pension costs for SERS … will be (the) system’s ability to stick to their funding schedule. Currently, (the system has) in place a 2040 target date for full funding.” Accessed 7/27/19 at:
4J. Brufke, House passes legislation aimed at stabilizing multiemployer pension plans, The Hill, 7/24/19, Accessed 7/27/19 at: See also: J. Towarnicky, I’m Dreaming of a … Well Funded Pension, 12/6/18, Accessed 7/26/19 at:
5S. Jakab, Public Pensions Are Stuck in the Clouds, WSJ, 7/27/19, Accessed 7/27/19 at: See also: Boston College Center for Retirement Research, State and Local Pension Plans, Accessed 7/27/19 at:
6J. Towarnicky, Retirement in America - Individual Account Retirement Savings Plans ARE Good Enough! 7/5/18, Accessed 7/26/19 at: See also: DC Plans: Can Everybody Win? 10/20/17, Accessed 7/26/19 at:
7The 2019 Annual Report of the Board of Trustees of the Federal Old-Age and Survivors Insurance and Federal Disability Insurance Trust Funds, 4/25/19, Accessed 7/27/19 at:
8J. Towarnicky, Make Retirement Plans Great Again? 12/11/18, Accessed 7/26/19 at: