Actuaries Association Testifies Before House

June 21, 2002 ( - The House Ways and Means Oversight Subcommittee heard testimony from the American Academy of Actuaries on the growth of defined contribution plans and the concurrent drop off in traditional defined benefit plans.

In his testimony, Ronald Gebhardtsbauer, senior pension fellow for the American Academy of Actuaries, cited data from the Department of Labor, which shows that the percentage of people in the labor force covered by defined benefit plans has fallen from 40% in 1975 to 21% in 1998.

At the same time, the percentage of people in defined contribution plans has increased from 16% to 46%.

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Of those in DC plans, more than three-quarters are in 401(k) arrangements.

Death of DB

The increase in the prevalence of 401(k) plans can be attributed to younger, more mobile workers who want a hand in their retirement planning, Gebhardtsbauer testified.

Another reason, he noted, is that the regulation of pension plans is “onerous” and considered “draconian” by many employers.

 Indeed, a 1993 study by the American Academy of Actuaries shows that increased government regulation was the major factor in the closure of 44% of pension plans in the 1980s.

Gebhardtsbauer also cited a research showing the increase in administrative costs of a pension spurred by increases in regulation in the 1980s.

In 1980, the cost of running a defined benefit plan was less than a similar defined contribution plan. By 1996, the former were almost 50% more expensive than the latter.

Call to Action

Gebhardtsbauer called on lawmakers to “level the playing field” between the two arrangements, offering a series of actions Congress should consider to make pension plans more attractive, including the creation of “DB401(k)” plans, which would have many of the advantages employees like in 401(k) plans, such as pre-tax employee contributions and matches, but it would pay a guaranteed lifetime benefit.

For a complete copy of Gebhardtsbauer’s testimony, go here .