Brief Touts Retirement Income Lessons from DBs

January 30, 2012 (PLANSPONSOR.com) – As employers continue to phase out defined benefit (DB) plans, employers, employees and the federal government are becoming aware of the shortcomings inherent with defined contribution (DC) plans, a new paper asserts.

An issue brief by the Institutional Retirement Income Council (IRIC), a non-profit think tank for the institutional retirement industry, says companies can now apply lessons learned from DB plans to improve the retirement outcomes for participants in the next generation of DC plans. The brief discusses factors needed to successfully introduce retirement income products in DC plans.  

Martha Tejera, founder of Tejera & Associates, LLC and an IRIC member who authored the issue brief, “Retirement Income in DC Plans: What Our Experience with DB Plans Tells Us,” discusses the importance of certainty, noting that employers’ inability to reliably predict required minimum contributions from year to year was a chief factor in the downfall of DB plans. The brief states that certainty is similarly important to individuals, and the next generation of DC plans needs to provide investment options that offer both certainty and the ability to pay a predictable retirement income for life.  

Tejera said retirement benefits need to be tangible to employees and easily understood. In addition, future government regulations should encourage employers to adopt retirement income solutions that ultimately lead to healthy utilization by employees, just as the Pension Protection Act which encouraged employers to incorporate automatic features into their DC plans. 

Rebecca Moore
editors@plansponsor.com