Public sector employees prefer defined benefit pensions over 401(k)-type defined contribution individual accounts, according to a study released Thursday by the National Institute on Retirement Security and Milliman Inc.
The study also found that defined benefit pensions are more cost efficient than defined contribution accounts because of higher investment returns and longevity risk pooling. DC accounts lack supplemental benefits, such as death and disability protection. These can still be provided, but require extra contributions outside the DC plan, which are therefore not deposited into the members' accounts.
The study, "Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers," looked at seven state retirement systems that offer a choice between defined benefit and defined contribution plans. What it found is that "when given a choice, between a primary DB or DC plan, public employees overwhelmingly choose the DB pension plan."
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