Future Retirement Income Security Needs Defined Benefit Pensions

[papau]

A report released by the Center for American Progress points out ways defined benefit pension plans provide better retirement security for American workers than defined contribution retirement plans. The report notes that defined benefit (DB) plans do not financially destroy companies, that DB plans raise pension coverage more than DC plans in the private sector, that pension wealth grows faster and more
equitably under DB plans, and that risk exposure is dramatically reduced under DB plans, plus participation rates by employees in DC plans have hovered around 50% for years, DC (like 401k) plans are less efficient than DB plans that pay a benefit based on duration of employment and salary, and indeed DB plans are a better employee attraction and retention tool - the reason why I suspect most Fortune 500 employers, public sector employers, new small professional firms schools, and hospitals all maintain DB plans.

I liked the point that a few public plans that made the switch from DB to DC have decided to switch back, including Nebraska and Indiana. A West Virginia system has also recently made the decision to reinstate its former DB plan, although it is facing opposition.

INDEED SUPPORT FOR DEFINED BENEFIT PLAN STRUCTURE FOR RETIREMENT SHOULD BE PART OF THE DEM PLATFORM

SO TAKE THAT MR BUSH AND STUFF YOUR ATTEMPT TO MOVE SOCIAL SECURITY FROM BEING A DEFINED BENEFIT PLAN (DB) AND BEING INSTEAD A PRIVATE ACCOUNT DEFINED CONTRIBUTION (DC) PLAN!



http://www.americanprogress.org/site/apps/nl/content2.asp?c=biJRJ8OVF&b=1590413&content_id=%7B3F697242-E05F-4B8C-BC83-4EF9D4201A30%7D¬oc=1

http://www.americanprogress.org/site/pp.asp?c=biJRJ8OVF&b=1697251

Future Retirement Income Security Needs Defined Benefit Pensions

by Teresa Ghilarducci, Professor of Economics, University of Notre Dame
May 19, 2006

Are defined benefit (DB) pension plans dead? They certainly look dead. Last year, several airlines famously dropped their DB plans onto the government-backed insurer (the Pension Benefit Guaranty Corporation). Meanwhile, in the first week of 2006, the International Business Machines Corp. (IBM) followed the lead of the Sears Holding Corp., Verizon Communications and over 67 other companies, which froze or closed their DB plans to new hires in 2005. IBM and the other “DB freezers” have instead opted for 401(k) plans, which shift the risk of preparing for retirement from the company to the individual worker. Now, retirement savings depend on workers’ ability to save regularly, invest wisely, and at low costs.

However, these trends lead to the misleading conclusion that DB plans are going the way of the dinosaur. Quite the contrary, many employers continue to offer these plans. Most Fortune 500 companies, public sector employers, new small professional firms (Frieswick 2002), schools, and hospitals all maintain DB plans. Additionally, a small number of employers that replaced DBs with defined contribution (DC) plans, such as the state of Nebraska, are now switching back. The truth is employers will continue to sponsor DB plans because both employers and workers often prefer them for sound reasons.

Moreover, the retirement landscape is characterized by three major problems, which can be better addressed by well regulated DB plans than by defined contribution (DC) plans. For one, many private sector employees are not covered by a pension plan. Second, retirement wealth creation has proceeded rather unequally, leaving many low and moderate income families with too few savings. And third, increasingly families are exposed to more and more risks when saving for retirement, which can mean that they will not have the retirement income that they expected.

In all three regards, DB plans continue to offer advantages not shared by DC plans, such as 401(k)s. For one, DB plans automatically cover every eligible worker. This universality cannot be duplicated in the DC world, unless employers are required to contribute for every worker. Not surprisingly, then, DB plan participation is associated with rising pension coverage in general to a larger degree than DC plan participation. In addition, DB plans are more efficient than DC plans. As a result, DC plan participants pay retail marketing, management, and annuitization fees — DBs pay wholesale, which means that more of each dollar saved will actually go towards retirement benefits under a DB plan. Moreover, workers are protected from a number of important risks under DB plans: idiosyncratic risk, market risk, and longevity risk. DBs are professionally invested, which substantially reduces the risk of making unwise or unlucky investment decisions. Also, DB plans have a long time horizon, which allows them to ride out bad market performances, thus reducing market risk. And DB plans typically pay a monthly lifetime benefit upon retirement, thereby reducing the risk that a worker runs out of savings.

DB plans, though, are not only beneficial for employees. Employers can use them as an important personnel management tool. This is particularly true in companies that are in need of high skilled labor. Moreover, as the retirement of the Baby Boom generation creates a labor shortage of skilled workers for many firms, such tools to retain an important resource will gain in relevance.<snip>

Read the full report (PDF), "Future Retirement Income Security Needs Defined Benefit Pensions," http://www.americanprogress.org/atf/cf/%7BE9245FE4-9A2B-43C7-A521-5D6FF2E06E03%7D/DEFINED_BENEFIT_LAYOUT.PDF

[antigop]

1. Absolutely, papau! DB plans should be part of the Dem platform

But these are "changing times". These are "times of globalization". Bush said so.


http://www.whitehouse.gov/news/releases/2006/05/20060519-4.html

EXCERPT: “I don't know if you know this or not, but by the time somebody gets
30 in this job market, people have changed jobs several times. That stands in
stark contrast to the days when previous generations would go to work and stay
at the job all their life. Pension funds are different now. We've got 401(k),
defined contribution plans as opposed to defined benefit plans. These are
changing times.“

[papau]

2. Bush may not be pure evil - but he either comes close or he is the

most incompetent president we have ever had.

It is like we hired the town drunk because the media was impressed that he had completed a 12 step program and now spoke of his person belief in God.

I do love our media.