A recent study argues that converting public sector defined benefit plans to defined contribution plans may not be without consequences.
In “Economic Volatility: Hidden Societal Cost of Prevailing Approaches to Pension Reforms,” the National Conference on Public Employee Retirement Systems (NCPERS) argues that those conversions have a ripple effect that can hurt the economy by creating economic volatility.
The study blames that on “irrational and unsustainable asset prices” that result from millions of Americans with “little or no investment experience or knowledge of the stock market or electronically traded funds” having to make investment decisions because the DB plan in which they participated was converted into a DC plan.
Furthermore, says the study, those conversions cut the potential retirement savings in half. The NCPERS says that when it examined Department of Labor data on per-participant savings in DB and DC plans from 1975 to 2012, it found that combined savings from both kinds of plans amounted to $7 trillion. If the conversions had not occurred, the study says, that figure would have been twice as high.
“The shift to DC plans and the dismantling of public pensions are policy choices that have serious societal consequences,” says the NCPERS. And those changes affect more than plan participants and their retirement prospects, the study says, arguing that they have “exacerbated income inequality” which in turn hurts the economies of the states it studied.
Pension plans have value, the NCPERS argues, calling them “great stabilizers of our economy.” It says that is because “When individual investors run for the door during market downturns, pension funds are there to stay. They are long-term investors and remain in the market for the long haul. This provides financial and economic stability that is needed for economic prosperity.” Further, it says, “Pensioners keep receiving their pension check in good as well as bad economic times. While incomes from jobs and investments decline during bad economic times, pension checks provide an economic cushion and keep local economies afloat.”
In “Economic Volatility: Hidden Societal Cost of Prevailing Approaches to Pension Reforms,” the National Conference on Public Employee Retirement Systems (NCPERS) argues that those conversions have a ripple effect that can hurt the economy by creating economic volatility.
The study blames that on “irrational and unsustainable asset prices” that result from millions of Americans with “little or no investment experience or knowledge of the stock market or electronically traded funds” having to make investment decisions because the DB plan in which they participated was converted into a DC plan.
Furthermore, says the study, those conversions cut the potential retirement savings in half. The NCPERS says that when it examined Department of Labor data on per-participant savings in DB and DC plans from 1975 to 2012, it found that combined savings from both kinds of plans amounted to $7 trillion. If the conversions had not occurred, the study says, that figure would have been twice as high.
“The shift to DC plans and the dismantling of public pensions are policy choices that have serious societal consequences,” says the NCPERS. And those changes affect more than plan participants and their retirement prospects, the study says, arguing that they have “exacerbated income inequality” which in turn hurts the economies of the states it studied.
Pension plans have value, the NCPERS argues, calling them “great stabilizers of our economy.” It says that is because “When individual investors run for the door during market downturns, pension funds are there to stay. They are long-term investors and remain in the market for the long haul. This provides financial and economic stability that is needed for economic prosperity.” Further, it says, “Pensioners keep receiving their pension check in good as well as bad economic times. While incomes from jobs and investments decline during bad economic times, pension checks provide an economic cushion and keep local economies afloat.”
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