By Emile Hallez
Source: Investment News
A pension research group has a message for employers: The switch from defined-benefit plans to 401(k)s has made retirement saving more expensive.
That conclusion takes into account the costs borne by both employers and employees. Switching to a defined-contribution plan can of course save companies money, but the overall cost of the benefit increases, according to the National Institute on Retirement Security. The nonprofit this month published its third iteration of a paper on the topic, with the new research factoring in the current low-interest-rate environment and the effects of starting to save for retirement mid-career.
“Switching from a DB to a DC system saves money only if it involves substantial cuts to employee benefits,” authors William Fornia and Dan Doonan wrote. “A typical DB plan, with advantages based on longevity risk pooling, asset allocation, low fees and professional management, has a 49% cost advantage compared to a typical individually directed DC plan.”