Retirement Industry Needs More Options to Prepare Workers for Retirement

March 6, 2012 ( - It is a myth that defined benefit (DB) plans cost more than defined contribution (DC) plans, according to Joshua Gotbaum, director of the Pension Benefit Guaranty Corporation (PBGC).  

Gotbaum spoke at the National Institute on Retirement Security’s (NIRS) third annual retirement policy conference Tuesday. During his keynote presentation, Gotbaum looked into the myths and realities of the retirement industry.

According to Gotbaum, the retirement crisis is real, and people recognize that there is a problem. He says however, the good news is that people are living longer. “They are living healthier lives. It’s a great thing,” said Gotbaum.

Fifty years ago, retirees would spend 17 to 18 years in retirement. Today, that number has jumped to 20 or more years. Gotbaum then asks the question, if Americans’ retirements are 30% longer than they were 50 years ago, then are their pensions 30% larger? The answer is no.

“The fact is that as people are living longer, retirement is going to cost more,” said Gotbaum. He added that people are saying people can work longer, however, the fact is people already are. Compared to more than 50 years ago, people today are deferring retirement by at least a year or two and are already living a year or two longer. “In the world of defined benefits, what is going to happen is a lot of them will run out of money,” added Gotbaum.  

Gotbaum offers three items of advice on what the industry needs to be doing to prepare people for retirement.

He suggests that we preserve the plans that we have. For example, the PBGC works hard to encourage employers to not end their DB plans. It is important to remind people how many people are actually covered by DB plans. It is not just the workers that are covered by DB plans—their families are as well.

Secondly, Gotbaum states that as an industry we need more options. “One size does not fit all. Far too many people act as if the only choices in the world are defined benefit and defined contribution plans,” he said.

“While it is very clear that plenty of employers look at the traditional defined benefit model, that doesn’t mean there aren't lots of alternatives to preserve some of the benefits of defined benefit plans with some of the benefits of defined contribution,” added Gotbaum. It’s important that in the industry, flexibility is allowed for plans.

Lastly, Gotbaum states that we need to keep talking. “This is a complicated subject. There are plenty of people who will not get it, but eventually they will. We have to recognize what the realities are. The most important thing is that people cannot give up. We cannot stop talking about the benefits of better retirement plans,” he concluded.