DB plans vs. DC plans

Defined Benefit or Defined Contribution, which is better for the retiree? The government seems to think that DC plans are better. They are moving away from building up DB plans such as the Canada Pension plan and the Old Age Security plan to new plans, which are DC plans. Perhaps Harper should listen to the following published on the Pensions and Benefits website, in May

John Liu of New York City and Thomas DiNapoli of New York state explained that “The traditional pension — also known as the defined benefit retirement plan — has been under attack in this country since at least 1980,” Mr. Liu said May 7. Mr. Liu, who oversees the five pension funds in the $122 billion New York City Retirement Systems, is also a proponent of offering public defined benefit plans to private-sector workers.

Much of the attacks on public pension funds are about costs, Mr. Liu said. But research by the city comptroller's office, titled “A Better Bang for the Buck,” shows the DB model is more cost effective than the defined contribution model, Mr. Liu said.

Still, he said, there is room to improve costs by changing the management of the five DB plans. Mr. Liu also has proposed the New York City Personal Retirement Account, which would effectively extend the city's pension plans to private employers. The National Conference on Public Employee Retirement Systems is touting a similar concept called Secure Choice Pension.

Both proposals would pool employee and employer contributions into a professionally managed retirement fund that leverages economies of scale to lower costs for employers and offers portability to workers, Mr. Liu said.

“We believe ideas like this will go a long way to keeping everyone out of the rain when it comes time for retirement,” Mr. Liu concluded.

On May 8, Mr. DiNapoli continued his criticism of 401(k) plans being offered as options to public employees, calling the DC option “woefully inadequate” for people who rely on them as a primary source of retirement income.

Mr. DiNapoli repeated his criticism of “anti-pension advocates” who try to blame public pension plans for damaging state and local budgets and for handing out allegedly inflated payments.  “Another well-worn line of attack on public pension funds — an argument that particularly disturbs me — is that they are bloated with retirees making six-figure pensions,” he said. “The vast majority of retirees in our system are receiving modest benefits.”