AFL-CIO: DC Plans Taking Away From DB Retirement Security

June 18, 2003 ( - Defined contribution (DC) plans are exposing employees to greater risk, magnifying the effects of swings in pension asset values, and limiting the types of available retirement benefits, a recent study has found.

The study by the AFL-CIO’s Center for Working Capital found that defined benefit (DB) pension plans have not only faced increased pension funding pressures due to challenging economic conditions, but also because they are themselves under attack due to the shift to the DC option.   “The harm caused by this change will be felt for decades into the future,” the Retirement In The Balance: The Crucial Role of Defined Benefit Pension Plans in Achieving Retirement Security in the United States report found.  

The attack is steeped highly in the shifting from DB to DC plans.   While employers see this as a money saving step, employees are then suddenly faced with increasing costs and investment risk.   Further, due to the relative small size of a DC plan to its DB counterpart and looser fiduciary requirements, employees are faced with the very real risk that losses at the beginning of retirement can wipe out a savings portfolio, the report stated.

“The shift away from defined benefit plans took place with far too little attention to the risks to workers,” Robert Pleasure, executive director of the Center for Working Capital, said in a statement.

Additionally, the shift takes away from a total retirement package that DB plans were established to provide.   “Decades of collective bargaining and legislative reform led to defined benefit plans designed to provide retirement security, not just retirement savings,” the report said, adding, “The distinction is important.”

In addition to income, retirement security hinges on multiple factors, including:

  • a wider variety of available benefits
  • predictability of benefits at retirement
  • ability to plan life in retirement based on such factors.

The answer, according to the report, is for DB plans to be improved, by making them more portable and less complex, and limiting DC arrangements to a supporting role.   However, even though some employees have such an option available to them, most workers in the United States have neither.