The US since Nixon, Reagan, accelerating under the Bush regimes, has been sliding down the ladder of prosperity.  This nation has plunged from a manufacturing powerhouse to a service economy now mired in an economic catastrophe, while middle class families are struggling to keep their heads above water remembering that their parents and grandparents, also hardworking, flourished in an equitable and just society that no longer exists, killed by corporate and millionaires' greed supported by Republican administrations.  

 

The fate of defined pension benefits that seem to going the way of the dodo caused by corporate management's erroneous decisions driven by avarice, where in 2005 a CEO made 821 times a minimum wage worker, making as much during a lunch hour as a minimum wage worker makes all year.

 

Now, a new study shows that DB plans cost less and are more efficient than the DC (defined contribution) like 401K plans.

 

The AFL-CIO blog reports: "Many private employers are dismantling the traditional guaranteed pension system to save money by dumping defined-benefit pensions (D in favor of riskier defined contribution (DC) plans like 401(k)s that put the responsibility for retirement security on workers' backs.

"But a new study shows that defined-benefit plans can provide the same level of retirement income at a 46 percent lower cost. That's because defined-benefit plans have certain built-in features that make them the most fiscally efficient way to provide retirement income. 

"The study, "A Better Bang for the Buck: The Economic Efficiencies of Defined-Benefit Pension Plans," was released today by the National Institute on Retirement Security (NIRS).

"Noting the study "is somewhat of a myth buster when it comes to conventional wisdom on the cost of retirement plans," NIRS Executive Director Beth Almeida says:

The analysis clearly indicates that the qualities inherent in defined-benefit plans”particularly the pooling of risks and assets”fuel their fiscal efficiency. Importantly, the report provides a new lens for policymakers, employers and employees, who are all struggling to ensure adequate retirement income with the fewest dollars possible.      

"Click here to read the full report and here for more information.

"Most union-negotiated pension plans are defined-benefit pension plans, which for decades have guaranteed retirees a fixed monthly income. These defined-benefit plans are usually funded entirely by employers through tax-exempt contributions and automatically cover all qualified employees. In defined-contribution plans, the retirement benefits depend upon the amount contributed to an individual worker's account and investment earnings on that account.

"Since 1978, the number of defined-benefit plans plummeted from 128,041 covering some 41 percent of private-sector workers to only 26,000 today, according to the nonpartisan Employee Benefit Research Institute. The U.S. Bureau of Labor Statistics finds that 21 percent of workers in the private sector have defined-benefit pensions.

"According to the NIRS report, defined-benefit plans:

• Avoid the problem of "over-saving" by pooling the risks of large numbers of individuals”resulting in a 15 percent cost savings.

• Maintain a balanced investment portfolio, compared with the typical individual strategy of shifting over time to a lower risk portfolio”resulting in a 5 percent savings.

• Achieve higher investment returns compared to individual investors because of professional asset management and lower fees”resulting in a 26 percent savings.

"William Fornia, one of the report's co-authors and senior vice president of Aon Consulting, says:

The model makes an "apples to apples" calculation of the actual dollar contributions required for a defined-benefit and defined“contribution plan to achieve the same target retirement benefit. The efficiencies of defined-benefit plans already are well-documented. This report, however, is important in terms of quantifying the magnitude of those efficiencies."