The National Institute on Retirement Security (NIRS) has issued a brief evaluating the federal Pension Protection Act of 2006. While the federal legislation’s goal was to ensure better retirement outcomes for working Americans through the strengthening of private sector defined benefit and defined contribution plan provisions, new research has found just the opposite.
Notable findings include:
- Employers are now less likely to offer defined benefit plans because of increased costs due to a switch in how plans determine funded health. This has resulted in less predictability in funding and the closing of private sector defined benefit plans.
- Overall retirement security has been eroded because private sector employers replaced frozen defined benefit plans with less effective defined contribution plans.
What does this research mean for PERA members and retirees? It further confirms that the defined benefit plan design is the best at achieving real retirement income security.
Read the NIRS brief.
For more detail on the PERA hybrid defined benefit plan design and the cost effectiveness of the plan, see the GRS report.
Hybrid defined benefitPERA’s Defined Benefit (DB) Plan is “hybrid” in that it combines features of a traditional DB plan with some of the features of defined contribution (DC) plans, such as portability.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.
