Budget & Tax
Curtis Shelton | May 4, 2022
Defined-contribution plans protect taxpayers
Defined-benefit retirement plans have been losing favor in the private sector for decades. After all, a defined-benefit plan puts all the risk on the employer. The more an employee’s retirement grows, the more liability the employer incurs. In the private sector, that means the more the cost of retirement goes up, the less net revenue there will be for the company. If retirement liabilities grow too large, then the solvency of the business comes into question.
The public sector has been slower to get rid of the defined-benefit model. A big reason for this is that public-sector employers aren’t at risk in the way that their private-sector counterparts are. After all, public-sector employers are spending other people’s money. Government theoretically always has access to more money through tax and fee increases. If liabilities grow out of control, lawmakers can simply raise taxes or fees rather than trim benefits, which is extremely unpopular among powerful public-employee interest groups.
While raising taxes may not be popular either, the tax increase can be diffuse enough to avoid robust opposition—especially when compared to how hard government employees and the public employees’ interest groups would fight against reduced benefits.
That is why a defined-contribution plan would work much better for taxpayers. It removes the risk of tax increases to pay for outsized retirement liabilities. At the same time, retirees would still have access to a robust retirement system that mirrors that of the average taxpayer.
Policy Research Fellow
Curtis Shelton currently serves as a policy research fellow for OCPA with a focus on fiscal policy. Curtis graduated Oklahoma State University in 2016 with a Bachelors of Arts in Finance. Previously, he served as a summer intern at OCPA and spent time as a staff accountant for Sutherland Global Services.