Teacher Pensions in Puerto Rico
You are right in identifying the underfunding of teacher pension funds in Puerto Rico as a big problem: Teachers and public employees have fulfilled their commitment to their pensions by contributing year in and year out, yet politicians failed to properly fund them and engaged in risky financial bets that made things only worse.
In Puerto Rico, between 2007 and 2013, the government shortchanged the teachers’ pension plan by $2.6 billion. Government advisers then pushed deals with hedge funds and banks that brought the island to the brink of bankruptcy. When the deals went bust, they demanded tax cuts for investors, privatized public services and reduced pension benefits.
It is wrong to believe that defined contribution plans are miracle solutions. Defined benefit plans now cover under a fifth of private-sector workers, down from 35 percent in the early 1990s. Weaker defined contribution plans like 401(k)’s have displaced them. They’re not an adequate substitute because, to achieve the same level of income in retirement, employers and employees must set aside nearly twice as much money for a typical 401(k) as they would in a traditional pension.
Full Content: New York Times
