Are you ready for a doozy of an unpopular opinion? Pensions should be illegal. Employer-sponsored retirement plans come in two basic forms: pensions (defined-benefit plans) and 401(k)s (defined-contribution plans). At their core, all retirement plans are the same. You work for a wage, you set aside some money and put it in a pot, that pot grows, if all goes well you will have a nice big savings account waiting for you when you retire. The functional difference between these two types of plans is who bears the risk. There are two risky barriers that must be overcome for a pension to work: that the pot will have a high rate of return, and that retirees will not live too long.

Risk can be quantified. There is a trade-off between a high rate of return and the possibility of loss in an investment. For any retirement account to generate high returns, they must look for more risky investments. The risk of people living a long time is quantified by life insurance. If you have a lump sum savings when you retire, you can convert this to a guaranteed income for the rest of your life by buying a life annuity, which is a type of insurance. Pensions therefore require the employer to act like an insurance company, a type of risk they are rarely set up to handle.

Private sector pensions should be illegal because companies are making promises to new employees they couldn’t possibly know if they can keep. No one can know what the health of a company will be 40 years in the future. When the financial crisis of 2009 hit, people cried for blood when bankers gambled with other people’s money and lost then called on the government to use tax dollars to bail them out. Private pensions are doing the same thing. They are chronically underfunded and when retirees don’t get the pensions they were promised, people call on the government for a bailout. Gullible employees are being swindled out of their retirements by a false guarantee of a pension. The solution to this problem is to ban companies from taking on so much risk and using other people’s retirements as leverage.

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Public sector pensions should be illegal for a different reason. They are single biggest cause of municipal bankruptcies in the country. This is why Detroit went bankrupt; this is why Chicago, and the whole state of Illinois, is desperate for revenue and their bonds are on the edge of junk status (analogous to a bad credit score). Due to accounting shenanigans, governments are allowed manipulate their debt by assuming the fund will grow at a very high rate then only reporting the difference between what they owe and what they have as debt. All it takes is a tiny dip in their investment and their reported debt will skyrocket. Their actual debt doesn’t change but this allows the continuous underreporting of how much debt a government actually has. If a private corporation reported their debt this way, the executives would be arrested for fraud. Even if these accounting standards were fixed, it would only unmask the problem that government benefits package are extremely generous compared to everyone else in the private sector and taxpayers are being ripped off.

Pensions, both public and private, should be illegal.