Memphis set to embrace 401(k)-style pension reform

401(k)-style retirement plans are becoming the new normal in state and local pension reform efforts. Six states have passed 401(k)-style reforms since 2008 – with Oklahoma passing a 401(k)-style reform plan for new workers earlier this year. Memphis, Tennessee, is the most recent example of a city pushing to take politicians out of the retirement...

401(k)-style retirement plans are becoming the new normal in state and local pension reform efforts. Six states have passed 401(k)-style reforms since 2008 – with Oklahoma passing a 401(k)-style reform plan for new workers earlier this year.

Memphis, Tennessee, is the most recent example of a city pushing to take politicians out of the retirement businesses and give workers control over their own retirements.

Memphis City Council met this week to discuss the details of Mayor A C Wharton’s new pension reform proposal. The plan would shift new employees to a hybrid retirement plan that has elements of a defined-benefit plan and a 401(k)-style retirement plan.

The hybrid retirement plan is weaker than the mayor’s original proposal, but Wharton’s efforts show that 401(k)-style retirement plans are becoming a core component of pension reform efforts across the county. Chicago Mayor Rahm Emanuel endorsed this reality a few years ago when he traveled to the state’s capital and advocated for 401(k)s to be part of the pension reform discussion.

Unfortunately, Emanuel has since abandoned his calls for real reform. And now the city’s pension funds are nearing insolvency. Chicago’s fire pension fund has only 25 cents for every dollar it should have in the bank today to pay for future benefits. The police fund, only 31 cents.

Many government officials use the legal battle over the state’s pension reform plan as an excuse to kick the pension-reform can down the road. But Emanuel could call for a reform plan that moves all new workers onto 401(k)-style retirement plans tomorrow.

The creation of 401(k)-style plans for new workers won’t solve Chicago’s current financial problems, but it will stop the bleeding and avoid conflict with the state constitution.