Pensions & Investments, October 31 2008
John Dantona reports on NIRS new report, “Look Before You Leap: The Unintended Consequences of Pension Freezes.
“States have found that abandoning a DB pension for a DC plan can actually increase costs, contrary to expectations,” Beth Almeida, NIRS executive director and co-author of the report. “Mostly, this is because (funding) regulations require pension obligations to be paid off sooner when a plan is frozen. It has a similar effect of refinancing from a 30-year mortgage to a 15-year mortgage, which drives up your payments. Accelerating pension payments is unlikely to be a helpful strategy for a state or local government looking for ways to manage through a difficult fiscal environment. Accounting rule-driven spikes in pension contributions can be significant as several states have found out.”
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