Bring back the DB plan?

Most adults under the age of 35 will never have access to a defined benefit retirement plan. All they’ll ever know is the 401(k) and the IRA.

A new report by Milliman says companies should consider bringing the defined benefit plan back because of their value to both employees and employers.

Milliman said DB plans are a great way to attract and keep experienced employees while also stretching the value of retirement dollars.

“Numerous studies show that, on average, corporate DB plan investment returns exceed those for DC plans,” according to Milliman.

Defined benefit plans help employees plan for the possibility that they’ll live longer. Many companies offering what they call “longevity” plans that won’t begin to pay benefits until the employee lives beyond a typical life expectancy.

“Pooling the risk and simplifying plan design (no disability options, no early retirement benefit, and limited death benefits) would decrease the costs and improve funding predictability,” the report found.

Many employees like defined contribution plans because they’re portable. Milliman makes the case that DB plans have become more portable as well. The report points out that small amounts of money, those under $5,000, can be cashed out and rolled over into an IRA or other qualified plan. Some plans provide a higher threshold and some use a lower one.

Cash balance plans also allow the rollover of the account balance to an IRA and many plans also allow rollovers upon termination of employment. Multiple employer defined benefit plans—those that cover numerous employers in the same industry, for instance—are another option that allow workers to jump jobs but maintain their retirement plan in the same place.

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