Never miss a story — sign up for PLANSPONSOR newsletters to keep up on the latest retirement plan benefits news.
Benefits February 27, 2026
Could Collective DC Be Next for US?
Collective defined contribution plans, available in several other countries, offer a potential third option for American companies.
Reported by Emily Boyle
Art by Simone Virgini
Employers hoping to offer a middle ground between traditional defined benefit pension funds and conventional defined contribution retirement plans may want to look to countries such as the U.K., Australia, Denmark and the Netherlands for inspiration.
“The U.K. used to be dominated by DB [plans], and a number of issues arose with them,” says Darren Philp, co-founder of U.K.-based Untamed Consulting Ltd. “Sometimes the pension scheme became bigger than the employer.”
Philp says the U.K. has seen the “demise” of DB plans, in which employers bore both the investment and longevity risks of the promised guaranteed retirement income. Former U.K. Pensions Minister Steve Webb, when in office in 2013, said he envisioned instead a “defined ambition” model that combined elements of DB and DC plans.
“Was there a middle way?” Webb asked, according to Philp. “Could we do something in between DB and DC that better shared risks between employers and individuals?”
So far, the best compromise is a collective defined contribution plan.
Breaking Down CDC Plans
In a CDC plan, both the employer and its employees contribute a fixed amount to a collective fund that provides income in retirement. Unlike in a DB plan, the employer does not guarantee the benefits paid by the plan. CDC plans provide a target pension that can be adjusted up or down based on the plan’s funding level, which is often related to investment performance.
The American Academy of Actuaries wrote in a 2024 issue brief: “Like traditional DC plans, CDC plans are attractive to sponsors because of the predictable cost. However, as in traditional DB plans, retirees benefit from the availability of lifetime income from CDC plans. … A requirement of a CDC plan is that the plan itself can provide the lifetime income payments, without the need for an insurance company or additional funding from either the plan sponsor or participants.”
In May 2023, five years after being proposed and more than two years after the introduction of the Pension Schemes Act 2021, the Royal Mail Collective Pension Plan became the first CDC plan authorized in the U.K. Philp says while Royal Mail dismantled its DB system, pressure from the U.K.’s highly unionized postal service led to the adoption of the middle-ground solution.
Philp explains that in a CDC plan, the employer is not “on the hook” for making up a funding shortfall, unlike in a DB plan. In addition, an employer can make more “aggressive” investment choices—beyond just allocating to fixed income—since it does not need to match investment performance to its liabilities.
“On paper, it’s a very attractive option,” Philp says. “To the layperson, it’s quite an attractive option as well. But it’s still in its infancy.”
Philp says he does not anticipate U.K. employers having to drastically reduce benefits based on low investment returns, even in more severe financial scenarios. He says any adjustment would likely result in a slower periodic increase in the payout amount or an adjustment less than the rate of inflation. Crucially, however, he says employers need to see how participants respond if benefits do not rise as much are they are expecting.
An Option in the US?
Philp does not predict CDC plans will become “mainstream” or “majority” plans in the U.K. “anytime soon,” but he predicts they will be “an important part of the pension landscape” in the future.
John Mitchem, a principal in consultancy JM3 Projects who also founded the Jasper Forum, a finance discussion group, says he is skeptical CDC plans could be adopted in a purely voluntary retirement plan system such as the U.S.
“There are a lot of things people should be doing, but because they’re voluntary, they’re simply not,” Mitchem says. He cites U.S. retirement savers’ not opting to save 15% of pay per year, utilize Roth contributions or annuitize—all financial moves he would recommend, but that most U.S. savers are not utilizing.
CDC plans are not currently available in the U.S. under the Employee Retirement Income Security Act, according to the American Academy of Actuaries’ issue brief.
“However, there are some church plans that employ key principles of CDC plans, such as longevity and investment pooling,” the actuaries wrote. “While variable annuity plans are allowed by ERISA, they are not considered to be CDC plans because they adjust benefits for investment experience only, and not demographic experience (e.g., mortality). As a result, the plan sponsor may need to make additional contributions if retiree longevity is greater than assumed or other demographic experience results in an increase in plan obligations.”
While CDC plans are new to the U.K., they are common in the Netherlands, Canada and Denmark, Mitchem explains. The plans have seen success in those countries—some for several decades—but each of those countries has a mandatory contribution system.
“CDC thrives in the Nordic states, which [are] known for social cohesion and kind of a patriarchal perspective on government responsibilities to people,” Mitchem says. “[Meanwhile], Americans say, ‘Look, I work hard, and my neighbor next door doesn’t work hard, and he deserves less retirement income than me.’ That’s the classic dilemma in American life. It’s the best thing about us, and it’s the worst thing about us.”
Considering the adoption of a CDC plan is “an economic planning question as much as it is a benefits delivery question,” Mitchem says. “That’s pushing the worlds of DC and CDC forward in my view.”
Grass Is Always Greener
Mandatory employer contribution rates for pensions in Australia, Denmark, the Netherlands and Sweden hover between 12% and 24%, Mitchem says, adding that “good quality systems are not cheap at all.”
Only 2.9% of plan sponsors that responded to PLANSPONSOR’s 2025 Defined Contribution Survey said they offered a maximum matching contribution of at least 6% to participants of their plan. Average employee deferral rates were highest among city and municipal government plan participants at 15.5%; respondents in the e-commerce industry group reported the lowest deferral rates at 3.4%. U.S. employers and employees do each contribute 6.2% of salary to the Social Security payroll tax on employee wages, totaling 12.4%.
Mitchem adds that a system utilizing bifurcated contribution components, with part CDC and part traditional DC—based on a participant’s choice—might gain more traction in the U.S. than a pure CDC system.
“Americans are very positive toward watching their balances grow,” Mitchem says.
Meanwhile, as the U.S. retirement industry eyes incorporating guaranteed payouts into plans, Mitchem says governments and pension sponsors in Nordic states are liking the look of the American system.
The Nordic see the U.S. has “75% of global retirement finance assets, and [there is a] clear correlation between really large [pools of investible] assets and capital market depth,” Mitchem says. “I think they’re going to come more toward the individual wealth-building direction where the Americans are.”
