Although the pro-privatization forces may try to characterize the public plans as being overly generous, public pension plans nationwide reportedly pay out an average of just $14,000 per year to retirees—a striking contrast to the retirement packages that most corporate CEOs secure for themselves.

The AFT believes unions and others need to mobilize and make the case that these plans are not in trouble and that a well-managed defined-benefit plan provides the best retirement security.

Celinda Lake, head of Lake Research Partners, told the AFT executive council in October that many U.S. workers, including public employees, are concerned about the stability of their current retirement plans. As a result, those pushing 401(k) and defined-contribution pension plans are making inroads with voters and workers, particularly younger ones, noted Lake, who presented results of a public opinion survey on traditional pension plans.

Most union members are wary of 401(k)-type pension plans, but many voters and other workers see them as more secure—at least initially, Lake said. “‘401(k)’ is a very positive term, even though many workers do not know what they are.”

Only 20 percent of those polled were “very confident” about their retirement security, said Lake, adding that this insecurity is driving up support for 401(k) plans. However, the positive feelings about 401(k) and defined-contribution plans get turned around when people learn about the risks and costs associated with them, she said.

When asked about resentment toward what some may see as “too rich” public pension plans, Lake explained that even though most people believe participants in public plans have it better than those in private plans, “they don’t like the idea of pitting public employees against private employees. They think everyone should have a good pension plan.”

The polling by Lake’s firm showed that the top three economic concerns of American voters are rising healthcare costs, the failure of wages to keep up with costs, and a secure retirement. Lake believes the public needs to be educated about pension plans, with the core message being that defined-benefit plans are stable and dependable, and defined-contribution plans are risky and costly. This information campaign should defend private sector pensions as well as public employee plans, she emphasized. “There needs to be a major effort to communicate the message that defined-contribution plans are risky and have been failures in the states that have tried them.”

The union will continue to highlight pensions and other retirement security issues, AFT president Edward J. McElroy told the council. “I want the AFT to have the capacity to help state and local affiliates with this issue.”

Here is how the three basic plans work:

Defined-benefit plan: These are traditional pensions in which employers promise to pay retirement benefits based on an employee’s years of service and final average salary. The investment costs and market risk are borne by the employer. 

Defined-contribution plan: These are 401(k)-type plans in which employers provide employees with individual investment accounts and promise to contribute a certain amount to the accounts. Employees can also contribute to their accounts and decide how the assets are invested. Investment management fees are paid by the employee’s account, reducing the funds available to pay benefits. At retirement, the employee’s benefit is paid solely from the contributions and investment earnings or losses that are factored into the payout.

Cash-balance plan: In a typical cash-balance plan, employers still contribute a certain amount to individual accounts. The employer also promises a rate of return on the assets in these accounts. Increases and decreases in the value of the plan’s investments do not directly affect the benefit amounts promised to participants. The investment risks are borne by the employer—who also keeps any profit in excess of the guaranteed rate of return.

The cash-balance plan is sometimes called a hybrid, because it combines elements of the other two plans. It provides regular fixed contributions to an individual account, much like a defined-contribution plan. And, like a defined-benefit account, it holds employers responsible for returns on investment.

New cash-balance plans are legitimized in the federal law passed this summer covering private pensions—legally inoculated from the kind of age-discrimination lawsuits that have plagued these plans in the past. Usually, it’s mid- and late-career employees who go to court, charging that companies shortchanged their years of service when they converted from traditional plans.

But even younger employees need to ask hard questions about cash-balance plans. They typically fail to offer disability and survivors’ benefits, which are crucial components in the safety net for employees under most defined-benefit plans. And cash-balance plans’ guaranteed rates of return are frequently below what traditional pension plans have generated in years past. Any “surplus returns” under this hybrid go right into employers’ pockets.

“You have to look at cash-balance plans on a case-by-case basis, but the benchmark is always the same—and that’s the traditional pension,” advises AFT pension specialist John Abraham.

These hybrids are “only as good as their ability to maintain employees’ standard of living and lifestyle into the retirement years,” Abraham adds. “We know that traditional pensions meet this standard. The jury is still out on whether cash-balance plans are up to the task.”