An End to the Era of Defined Benefits
Today’s announced agreement between United Auto Workers and General Motors to resolve the ongoing dispute about retirement health benefits represents the monumental shift in defined retirement benefits. The $55 million unfunded health insurance liability symbolizes the problems associated with defined benefit retirement systems. Exponential growth in health care and retirement costs are unsustainable for even the largest companies.
The same is true for governments. Defined benefit systems are gobbling up state budgets and producing unfunded liabilities that will fall on the backs of future generations.
Consider the State of Maine. Currently, Maine has an unfunded liability for health insurance retired government workers of $4.8 billion. That figure is equal to 60 percent of the biennium General Fund Budget.
The State of Maine needs to do as General Motors did and shift away from a defined benefit system for their retirees and move to a system that provides a defined contribution. Defined contribution systems allow workers to better plan for future retirement needs while also protecting future generations from huge unfunded liabilities.