The National Institute on Retirement Security (NIRS) recently released a report entitled, A Better Bang for the Buck 3.0. The report, co-authored by NIRS’ Executive Director Dan Doonan, and William Fornia, FSA, Pension Trustee Advisors president, is a follow up of previous NIRS Better Bang for the Buck reports released in 2008 and 2014. In their analysis, NIRS concluded, again, that defined-benefit pension plans offer substantial cost savings over defined-contribution retirement plans, such as a 401(k). The cost savings are attributed to longevity risk pooling, higher investment returns, and optimally balanced investment portfolios.
Their findings indicate that a typical pension has a 49 percent cost advantage compared to a typical defined-contribution account. Along with all of the risk associated with defined-contribution accounts, as employees are at the whims of the market, four-fifths of employees participating in these accounts experience much higher fees. NIRS found that this cost difference occurs mainly in post-retirement years as fees occur when accounts are withdrawn during a worker’s retirement.
Defined-benefit pension plans continue to be the most cost-effective retirement vehicle for public employees. Pensions also provide public employees security in retirement, cost states less to administer than defined-contribution 401(k) plans, pool risk so public employees are not at the whims of the market, and provide an essential benefit for state and local economies.
In fact, defined benefit pension plans in the United States in 2018 generated $1.3 trillion in total economic output, supported 6.9 million jobs, and produced $191.9 billion in federal, state, and local tax revenue. Additionally, taxpayers benefit too, as for each dollar contributed to pension funds, pension spending supported $8.80 in total output nationally.
Every public employee earns their defined-benefit pension throughout a career of service in their communities. NIRS’ analysis continues to prove that pensions are a better retirement plan for public employees across the country.
