Study: Guaranteed Pensions Cost Less

[Omaha Steve]

http://blog.aflcio.org/2008/08/14/study-guaranteed-pensions-cost-less/

by James Parks, Aug 14, 2008

Many private employers are dismantling the traditional guaranteed pension system to save money by dumping defined-benefit pensions (DB) in favor of riskier defined contribution (DC) plans like 401(k)s that put the responsibility for retirement security on workers’ backs.



But a new study shows that defined-benefit plans can provide the same level of retirement income at a 46 percent lower cost. That’s because defined-benefit plans have certain built-in features that make them the most fiscally efficient way to provide retirement income.

The study, “A Better Bang for the Buck: The Economic Efficiencies of Defined-Benefit Pension Plans,” was released today by the National Institute on Retirement Security (NIRS).

Noting the study “is somewhat of a myth buster when it comes to conventional wisdom on the cost of retirement plans,” NIRS Executive Director Beth Almeida says:

The analysis clearly indicates that the qualities inherent in defined-benefit plans—particularly the pooling of risks and assets—fuel their fiscal efficiency. Importantly, the report provides a new lens for policymakers, employers and employees, who are all struggling to ensure adequate retirement income with the fewest dollars possible.

Click here to read the full report and here for more information.

Most union-negotiated pension plans are defined-benefit pension plans, which for decades have guaranteed retirees a fixed monthly income. These defined-benefit plans are usually funded entirely by employers through tax-exempt contributions and automatically cover all qualified employees. In defined-contribution plans, the retirement benefits depend upon the amount contributed to an individual worker’s account and investment earnings on that account.

FULL story at link.