Decisions - decisions : retirement plan choices for public employees and employers

Abstract: A new research analysis finds that defined benefit (DB) pension plans are strongly preferred over 401(k)-type defined contribution (DC) individual accounts. Findings include: * When given the choice between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan. * DB pensions are more cost efficient than DC accounts due to higher investment returns and longevity risk pooling. * DC accounts lack supplemental benefits such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan which are therefore not deposited into the members' accounts. * When states look at shifting from a DB pension to DC accounts, such a shift does not close funding shortfalls and can increase retirement costs. * A "hybrid" plan for new employees in Utah provides a unique case study in that it has capped the pension funding risk to the employer and shifted risk to employees.