Defined Contribution Plans in the Public Sector: An Update


Summary:

This issue brief finds that while there has been much discussion of shifting from defined benefit to defined contribution plans, relatively few governments have actually done so. (4/14)

Author(s):
Alicia H. Munnell, Jean-Pierre Aubry, and Mark Carafelli of the Center for Retirement Research at Boston College
Publication date:
4/14
Filed under:
Research Studies
Key findings:
  • Post-2008 changes have been to establish either hybrid plans or cash balance plans, rather than stand-alone defined contribution plans.
  • The changes appear driven by a desire to avoid future unfunded liabilities, to reduce investment and mortality risk, and to help short-tenure workers.
  • Such changes transfer risk to participants, but if the new plans enhance the likelihood of responsible funding, they could also offer some increased security.
 
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Defined_Contribution_Plans_An_Update

The 2008 financial crisis prompted many state and local governments to make changes to their defined benefit pensions, most often raising employee and employer contributions and reducing benefits for new employees.

This issue brief finds that while there has been much discussion of shifting from defined benefit to defined contribution plans, relatively few governments have actually done so.

It also finds that defined benefit plans still dominate and only about 11 percent of public sector workers have a primary defined contribution plan.
In particular, the brief looks at hybrid plans established by Georgia, Michigan, Rhode Island, Utah, Tennessee, and Virginia, and cash balance plans in Kansas and Kentucky.

The brief updates 2011 Center research on defined contribution plans in the public sector.