More Municipal Pension Pain

Financially ailing GM moves to a defined contribution plan. The Tribune:

Effective Jan. 1, GM will freeze the accrued pension benefits for approximately 40,000 U.S. salaried employees. The change won't affect retirees.

"This is a major cut, but it's also another shot over the union's bow to send a signal about getting future concessions in the next negotiations," Burnham Securities Inc. analyst David Healy told Bloomberg News. GM plans to eliminate 30,000 union jobs and close nine manufacturing plants by 2008.

Salaried employees hired on or after Jan. 1, 2001, will move exclusively to a defined contribution plan. Those employees currently have a cash balance plan, which works like a traditional defined benefit plan but allows participants to collect their benefits in a lump sum at retirement instead of in monthly checks.

And New York's Housing Authority is bleeding red ink, a cautionary tale for municipalities and government entities around the country. The NY Times:

According to the agency, expenses have skyrocketed. Contributions to its employees' pension fund increased by 866 percent, to $62.6 million, between 2001 and 2005, in part because of market fluctuations and new state laws, a problem faced by scores of government agencies. Further, utility costs rose by 45 percent, health care costs by 42 percent and workers' compensation by 39 percent.

We definitely need more transparency and accountability in government, and new approaches to old problems. Cutting bloated payrolls yields more than one benefit. At least with the private sector the market eventually enforces financial discipline.

Local governments rank among the worst offenders.