What is the fundamental financial objective of public employee defined benefit and hybrid plans?

The fundamental financial objective of public employee defined benefit and hybrid plans is to fund the long-term cost of benefits in a fiscally sustainable manner. This approach prioritizes ensuring that the pension obligations to employees are met over the long term, considering both the benefits promised and the available funding sources.

Funding these pensions sustainably is essential for maintaining the financial health of public employee pension plans, as it allows for the provision of promised benefits to retirees while also ensuring that the plans remain viable and do not impose undue financial burdens on the sponsoring entities, such as state and local governments. Actuarial assessments and prudent investment strategies are employed to project funding needs and safeguard the plans from market volatility, thereby ensuring consistent and reliable benefits for retirees.

In contrast, focusing on maximizing short-term returns does not align with the long-term horizon of pension obligations, as it may involve higher risk strategies that could jeopardize the sustainability of the fund. Reducing administrative costs, while beneficial, does not directly address the critical issue of funding long-term benefits. Similarly, increasing employee contributions might improve funding temporarily, but it does not inherently ensure that the long-term liabilities are adequately covered or that the overall sustainability of the benefits is maintained.