Some officials see a benefit in a hybrid plan, which maintains a prada handbags 2011 pension, typically a less generous one for new hires, and a 401(k)-type component.Switching to a pure 401(k)-like plan "would have taken any savings and turned it into a cost in the earlier years," said Phil Stoddard, director of Michigan's Office of Retirement Services.In Utah, state Sen. Dan Liljenquist, a Republican instrumental in moving the state to a hybrid plan, says that to adhere to accounting standards, the state would have had to pay as much as 20% more each year for nearly a decade if it closed its defined-benefit plan. Avoiding such costs, he says, is one benefit of going with a hybrid approach. A switch can increase the payments a public employer has to make to any pension fund it closes, particularly if the pension is underfunded, which many are. That is because when a fund closes, over time there are fewer workers contributing. The burden can fall on the public employer to make up shortfalls.The Governmental Accounting Standards Board, or GASB, the nonprofit organization that sets accounting rules for state and local governments, requires that officials who close a defined-benefit shop online 2011 plan account for higher annual costs triggered by projected decreases in the number of employees contributing to the fund. GASB can't require pension systems to pay off those higher annual costs, but a fund would have to register liabilities on its balance sheet if it didn't, under the rules. Those liabilities can draw the scrutiny of credit-rating firms and investors.It also depends on how the market performs. In the surging market of the 1990s, many governments didn't need to contribute as much to their pension plans as they would have in a weak market because investment returns drove down the payments required each year. That changed with the market losses of 2008, which left many states facing widening gaps."It is no doubt the proper thing over the long term to…consider reforming the level of benefits" says Gabriel Petek, a public-finance analyst at credit-rating firm Standard & Poor's. But "it's not to be forgotten that these existing benefits don't just go away."A closed pension fund generally would shift its asset allocation over time toward less-risky investments in the same way an individual might move from riskier to more-conservative investments as retirement nears. That shift can reduce the plan's investment returns, leaving the employer needing to pay more.How much the switch to a 401(k)-type plan saves can depend on how substantial the benefit reductions are when plans change. For instance, under a new plan, the government might reduce the share that the public employer contributes to 6% of a new employee's salary from 8%. Proponents say the public sector should follow the corporate world and move away from pensions. They point out that what a government pays into a 401(k)-type plan doesn't fluctuate with the market. Some see steady contributions as a plus for states' budget-planning. Many government-worker unions oppose a switch to 401(k)-type plans. The debate has become heated in Florida after Gov. Scott called for such a move. Florida's pension system was 87.9% funded as of July. Doug Martin, legislative coach Outlet storedirector for the Florida branch of the American Federation of State, County and Municipal Employees, opposes abandoning the pension plan and says the costs of switching to a 401(k)-like plan can outweigh the savings for at least 25 years.
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