Pensions are in trouble in America. For more than three decades, private employers have been shifting away from traditional pensions and adopting 401(k)-style plans. A handful of public employers have done the same, and other governments are being pressured to follow suit.
Those who advocate that we should abandon defined benefit pensions typically say that they're unsustainable -- and their primary evidence is that public pensions funds are deeply in debt. The truth of the matter, though, is that a defined benefit pension system can be perfectly sustainable if managed properly, and that most of our pension problems result from mismanagement. This mismanagement has taken many forms (including the use of inappropriate assumptions about investment returns and mortality, tolerance of abuse, and granting of unfunded or retroactive benefit enhancements) but by far the most common, most tempting, and most easily avoidable one is deliberate underfunding.