Defined-Benefit Plan

Think: retirement plan with guaranteed investment results.

That is, those government workers lucky enough to receive a defined-benefit plan are guaranteed some minimum rate of annual investment return from the government-hired union Wall Street investors managing their money.

Now, when you think of the sharpest, meanest, hungriest Wall Street investors, who were raised by a single mother in a poor neighborhood in Brooklyn, where they would eat nails to make enough money for a nice dinner...you generally don't think of union government workers.

So it comes as little surprise that government-managed investments have historically done very poorly relative to the results of the highly paid professionals performing the same duties. As a result, taxpayers must then make up the difference from the poor performing government managers to equal the minimums required in a defined-benefit retirement plan.

In California, interesting conflicts arose out of the union pension liability, which the city owed to its local police force. A common game in the negotiations between unions and politicians revolved around retirement economics. Police could retire after 30 years of service and collect a pension for the rest of their lives. The deal didn't seem bad when the average cop lived to be 62. But then cops got organic, shunned the donut thing, and 82 was the new 62.

Compounding problems, police received as their pension 85% of whatever their total compensation came to on average, in the previous 3 years that they worked. So in those 3 years, cops put in massive amounts of overtime, often working the equivalent of double shifts for 3 years. As a result, salaries skyrocketed.

They then took 85% of that figure and promptly retired. Hey, wouldn't you?

Now, add to this liability pension obligations and a bunch of other costs like health insurance, and it created a crisis wherein cities explained that they simply could not afford the police force that they had. Instead of pointing to the bloated deals that were cut by lousy politicians with unions who negotiated beautifully, cities asked their constituents to be allowed to raise taxes. When the vote was emphatically "no," many cities were forced to fire their entire police and fire forces and "outsource" to hire a service which could negotiate much more favorable "in market" pricing.