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Moving employees from a defined benefit pension plan to a defined contribution retirement scheme does nothing to save money for sponsors and taxpayers, and in fact ends up increasing debt according to research from the National Institute on Retirement Security (NIRS).
The institute’s Public Pension Resource Guide “provides readers with facts and data on the important role that public pensions play in the economy—for employees and retirees, public employers, and taxpayers alike.”
It’s a common misperception that DC schemes save money compared to DB plans, states the guide. An analysis of what happened when several states switched to DC, Case Studies of State Pension Plans that Switched to Defined Contribution Plans, shows that “pensions deliver the same amount of lifetime income for about half of the cost of providing the lifetime income from a typical DC plan.”
The study reviews the experiences of West Virginia, Michigan, and Alaska, which all moved to a DC-type plan. “Rather than save states money, these DB to DC switch exacerbated funding problems and drove up pension debt.”
More: West Virginia TRS backtracked on move to DC, enrolling new hires in DB plan.

ARIA provides a forum for an informed discussion on retirement income adequacy, and other related issues, including pension and retirement coverage, and defined benefit pension plans – ARIA pensions blog, 12 Dunlop Street, Barrie, ON, L4N 1V6 – sitemanager@ariapensions.ca

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