While public debate has mainly focused on the “gold-plated” defined benefits of many public-service pension plans, the real problem lies in a flawed approach to managing compensation costs, according to respected pension expert Malcolm Hamilton. In, “Evaluating Public-Sector Pensions: How Much Do They Really Cost?” Hamilton says the problem is government sponsors who typically underestimate the cost of guaranteeing pay-outs in the future, leading to the undervaluation of employee pension costs and the mismanagement of employee compensation. “The problem is not with the defined-benefit plans per se, it relates to the mispricing of their guarantees, which leads to the over-compensation of employees and badly accounted-for risks to future taxpayers,” says Hamilton.
