> but it’s obviously a better move for the school since they will eventually not have to pay out any funds to anyone who doesn’t actually work at the school.
The school district has to pay now rather than pay later (not only the employer contribution, but salary is generally higher to make up for the lack of a juicy pension). The 401K is also persistent (you don't need to work X amount of years at the school district for it to stick), and if you die early, your heirs inherit it rather than it just going poof. It isn't an obvious win for the school district...and it does keep them more honest in that they can't pretend their investment returns will be higher than they actually are.
> The school district might have 100 employees but have 100 active pensions. Compare that to having 100 employees being paid 5% more and 0 pensions..
A bit more than 5%, but exactly (about $30k/year to fully fund a 401k from employee and employer side, sans whatever the employee contribution was before).
The school district has to pay now rather than pay later (not only the employer contribution, but salary is generally higher to make up for the lack of a juicy pension). The 401K is also persistent (you don't need to work X amount of years at the school district for it to stick), and if you die early, your heirs inherit it rather than it just going poof. It isn't an obvious win for the school district...and it does keep them more honest in that they can't pretend their investment returns will be higher than they actually are.