Why Have Some States Introduced Defined Contribution Plans?
Although defined benefit plans dominate the state and local sector, 12 states have introduced some form of defined contribution plan in the last decade. The degree of compulsion varies among these states, from mandatory participation in a defined contribution plan for new employees, to mandatory participation in both a defined benefit and defined contribution plan, to having the defined contribution plan only as an option.
This brief describes this flurry of defined contribution activity, presents data on participation and assets to put the flurry into perspective, and identifies the factors that led to the changes occurring in the states where they did. Key findings include:
- While 12 states have introduced some form of defined contribution plan, only four compel participation.
- A defined contribution option could help attract younger workers, but such plans cost more to operate and are unlikely to generate higher returns.
- The key factor for introducing a defined contribution plan is Republican control of the governorship and state legislature.