The Challenge of Providing Retirement Security through Defined Contribution Plans

Abstract

Employer-sponsored pensions represent an important component of retirement income. Since the early 1980s, while the percentage of workers participating in a pension plan has remained flat across the private sector work force, pension coverage has seen a noticeable shift away from “traditional” defined benefit (DB) plans, in which workers typically accrue benefits based on years of service and earnings, toward defined contribution (DC) plans, in which participants accumulate balances in personal accounts. DC plans provide participants tax-preferred savings vehicles, portability, and the transparency of known account balances. However, they shift many key responsibilities and risks of saving for retirement from employers to employees.