As the debate rages over whether the U.S. retirement system is broken or just needs some repair to keep up with changing times and demographics, The New York Times compared it with the Dutch pension system, highlighting the problems with American defined-benefit plans. Not even tackling issues with DC plans, the article describes how Dutch companies and workers were willing to take tough measures like increasing funding and cutting benefits to ensure a solid retirement future.
U.S. public pensions are underfunded by about one-third, as highlighted by the Detroit bankruptcy and issues with states like New Jersey that push the tough decisions out into the future. While Dutch workers defer 18% of salaries using diversified, professionally-run money managers with companies banding together to get better deals, the U.S. rate is at 16.4%, mostly from Social Security. Dutch companies are required to hold $1.05 for every $1.00 of liability, not relying on estimated and sometimes unrealistic rates of returns; companies have three years to recover if the assets dip below $1.05. When markets collapse, Dutch companies’ liabilities are capped; but when they increase, the companies can’t tap the surplus. In 2008, for example, Dutch companies had an estimated $1.45 for every $1.00 of liability; that dropped to 90 cents, but they had three years to recover.
