By Dan Doonan
Retirement plan design can make or break an employee’s ability to maintain their standard of living in retirement. Over the past several decades, many private sector companies implemented a complete overhaul in retirement plan design, shifting from defined benefit pensions to 401(k)-style defined contribution accounts.
Originally designed to supplement rather than replace pensions, 401(k) plans have become the primary employer-sponsored plan for many U.S. workers. This transition meant sacrificing a number of important features of pension plans and economic efficiencies. Lost were key attributes unique to pensions that strengthen retirement security: lifetime income, longevity risk pooling, mandatory participation, pooled investments managed by professionals, disability and survivor protections, and targeted income replacement. These inherent advantages of pensions mean that these retirement plans can deliver nearly double the retirement benefits at the same cost as compared to a 401(k)-style defined contribution plan.