Administration April 3, 2004

Report: Public Sector Still Clinging to DB Plans

March 4, 2004 (PLANSPONSOR.com) - Even though increasing numbers of private-sector employers have been at least eyeing a move from a defined benefit (DB) to a defined contribution (DC) plan, many public employers still embrace a DB program.
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A study by the Nationwide Retirement Education Institute found that while public sector plans make up only 5% of total in the US, they hold 53% of all DB assets. The study also found an emerging public sector trend of hybrid DC/DB programs as well as new DB plan distribution choices (deferred retirement option plans – DROPS – and partial lump sums).

The participant demographics are also different, according to the study. For example, public-sector participants are:

  • 58% women versus 49% for private plans
  • 74% are over 35 years old versus 61% for private
  • paid an average annual $40,228 salary versus $38,322 for private plans.

Also, according to the study, 457 plans showed evidence of some positive trends. The last several years have seen average deferrals increase – most dramatically for older employees. The gap between men and women’s savings rates also continues to narrow, even though men are still saving more than women.

Finally, employees are becoming more diversified with an increase in the number of participants investing in three or more asset classes. 457 plan participants have fewer assets in equities and were slightly less likely to have been active traders during 2003: 11% of 457 participants moved money between funds versus 17% of private sector k plans.

The report also pointed out that most public sector workers can count on getting a significant portion of their retirement income from a DB plan and can use 457 plan assets to supplement that money. For most private sector workers, their K plan assets represent their primary retirement income source.

All in all, public-sector administrators face several key challenges, according to the report:

  • like their private-sector counterparts, having large numbers of older workers with inadequate savings,
  • increased worker longevity and the need to fund a longer retirement,
  • poor understanding of investing principles by employees and inadequate diversification, and
  • continuing public budget pressure.

The survey combines information from the Nationwide Retirement Solutions’ database of 8,200 plans with 1.75 million participants and more than $31 billion in assets with other government and industry sources. For more information, go to http://nrsretire.nrsservicecenter.com/nrs/CDA/nrsEmployerHome/1,3113,,00.html .

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