Why Have Defined Benefit Plans Survived in the Public Sector?
While 401(k) plans now dominate the private sector, defined benefit plans remain the norm among state and local governments. This brief examines the unique factors affecting the two sectors that may explain their very different patterns of pension coverage.
Three main factors were identified:
- Different workforces — The public sector workforce is older, less mobile, more risk averse, and more unionized than its private sector counterpart.
- Different employers — Governments do not go out of business and face fewer market pressures.
- Different regulatory environment — Public plans are exempt from federal regulations covering private plans, making them less expensive to run.