In: Operations Management
A town in California is broke. The city had been warned several times over the last few years that it did not have enough money to pay out future pensioners. There is a law that says the town must pay promised benefits. The town says that it cannot, no money. You be the judge. Who wins here? The town or the pensioners? Why did they win and what did you cite for the reasons?
As per the law that states that the
town should pay the promised benefits and the individuals have
already contributed through the necessary deductions to the city
government. Then, the judgment should go in favor of the
pensioners. These pensioners win because these people followed the
rules and contributed to the social security schemes. It was the
failure on the part of the city management or government to
channelize the funds to produce the wealth that could be paid back
as pensions. So, defaulting on the promises made by the city
government at the time of issuing a pension, will create chaos in
the society and it will create a conflict between the city and the
people.
The other prominent reason is the responsibility of the city to
protect its old age people as they cannot earn for themselves. Not
helping them, will create an additional burden on other programs
such as health care and Federal programs. So, failure of the city
government to effectively manage the contributions made by the
individuals, cannot be used as an excuse to not to issue the
pensions.
Here, the city can do to modify the deduction rates, reorganize the
way the funds are invested and spending patter is modified to meet
the future obligations. Laws related to the issue of the pension,
can also be modified to facilitate the issues of the changing
environment.