Talking Points for Returning to the Defined Benefit Plan

 

 

Long-term cost savings of switching to a Defined Contribution plan are uncertain at best.

DC plans a re costly to establish and maintain.

Pension benefits currently promised to state and local employees and retirees may not be abandoned.  Switching to a DC plan does not reduce accrued DB plan benefits already earned.  This is part of the unfunded liability critics never talk about.  There is no money going into the account from newly hirees as the plan was set up to have.

In several cases,  state that had a DC plan have replaced them or are considering replacing them with a DB plan due to inadequacy of plan benefits or increased costs.

Good Disability or survivor benefits are not provided.

Good DB plans enhance the ability of state and local governments to attract qualified employees and retain them throughout their careers.  The turnover rate has already increased with only one year of the DC plan and it will get worse.  We will become the training ground for the” lower 8.”   It is expensive to train new firemen, policemen, and teachers.

By pooling risk over a relatively large number of participants, DB plan lower the overall risk due to investment losses and participants outliving retirement benefits.  Switching to a DC plan has required each individual to bear these risks alone, consequently requiring higher contributions than if the risks were pooled .

DB plans earn higher investment returns and pay lower investment management fees, on average, than DC plans.

Db plans provide secure retirement benefits that are based on a person’s salary and period of service.  Switching to a DC plan is likely to result in lower and less secure retirement benefits for many long-term governmental employees, firefighters, police officers, and teachers, who constitute over half of state and local government workers.  State and local employees who are with Social Security coverage are at great risk.

DB plans help sustain state and local economies by providing adequate retirement benefits for a significant portion of the work force.  DC plans will likely slow state and local economies, since a large number of retirees would likely receive lower retirement benefits or move to the lower 48 taking their money and the state money with them.

DB PLANS PROVIDE BENEFITS THAT HELP TO ENSURE AN ADEQUATE STANDARD OF LIVING THROUGHTOUT RETIREMENT.

 

These advantages were taken from a NCPERS RESEARCH SERIES publication with permission.

 

 

Several Pension Talking Points below: