On December 4, 2014, the National Institute on Retirement Security (NIRS) issued updated research showing how defined benefit (DB) plans outperform defined contribution (DC) or 401(k)-type plans. “Still a Better Bang for the Buck: Update on the Economic Efficiencies of Pensions” updates research from a 2008 study that found the pooled professional investments, long-term time horizons, and lower fees of defined benefit plans outperform individually managed 401(k)-type plans. NIRS says DB plans provide the same amount of retirement income for about half the cost of an individual DC account.
Defined benefitAlso known as a pension, this is a type of pooled retirement plan in which the plan promises to pay a lifetime benefit to the employee at retirement. The plan manages investments on behalf of members, and the retirement benefit is based on factors such as age at retirement, years of employment and salary history.Defined contributionA type of individual retirement plan in which an employee saves a portion of each paycheck (along with a potential employer match) and invests that money. The employee’s retirement benefit is based on their account balance at retirement. A 401(k) is a type of defined contribution plan.
