Costs of Switching From a DB to a DC Plan

The Transition Cost Mirage: False Arguments Distract From Real Pension Reform Debates, Josh McGee, Arnold Foundation, March 2013

• "Too often misguided claims of potential increased cost frustrate reform efforts that would otherwise place systems on a more sustainable path, protecting both workers and taxpayers. Policymakers should move beyond these distracting and misleading claims and fix the broken system once and for all."

GASB Won't Let Me -- A False Objection to Public Pension Reform, Robert M. Costrell, Arnold Foundation

• The decision on scheduling amortization payments on the unfunded accrued liability (UAL) is a financial policy decision, not much different from the decision on scheduling debt service payments on ordinary debt. How to structure future benefits is a separate policy decision.

GASB Reporting vs. Pension Funding, Keith Brainard response to the paper by Robert M. Costrell and sponsored by the Arnold Foundation study, May 2012

• This paper examines and debunks the claim that GASB standards serve as an impediment to reforming defined benefit plans.

In Defense of Defined-Benefit Pensions, Center for American Progress Action Fund, February 2012

• While proponents argue that these alternative defined-contribution plans are good for taxpayers, in most cases taxpayers are better off making relatively minor reforms to the current defined-benefit pension system rather than scrapping it entirely.

Defined Contribution Models in Other States by Joshua Elliot-Traficante, Josiah Bartlett Center for Public Policy, September 2011

• Excerpt: "With mounting unfunded liabilities in their pension systems, made worse by the recent economic turmoil, many states have begun looking at other retirement benefit options. In recent years, policy makers in a number of states have turned away from the pure pension model, instead opting for plans that are not only fair to the employees but also free the taxpayers from being left with the bill for huge deficits. Given the scale of the pension funding crisis, several reform minded states have instituted a variety of systems to replace their pension systems, which are outlined in the following paper."

Working Paper: From Defined Benefit to Defined Contribution by Scott A. Beaulier, Mercatus Center, George Mason University, September 2011

• The focus of this paper is on the cost, risk, and other factors associated with switching a retirement plan from defined benefit to defined contribution.

List of Advantages and Disadvantages for DB and DC Plans Gabriel, Roeder, Smith & Company, November 2003

• There are many advantages and disadvantages to both defined benefit and defined contribution plans, and what may appear advantageous to one person may in fact be disadvantageous to another.

State Reports

Defined Contribution & Retirement Study Committee Final Report, Arizona State Treasurer, December 21, 2012

• An analysis of defined contribution plans for Arizona employees

Five Options for Addressing ‘Transition Costs’ When Closing the MPSERS Pension Plan, Mackinac Center for Public Policy, March 2012

• This paper explains how policymakers can honor the commitments made to MPSERS participants while controlling and even eliminating the transition costs associated with switching from a defined benefit to a defined contribution plan.

Public Employees Retirement System of the State of Nevada: Analysis and Comparison of Defined Benefit and Defined Contribution Retirement Plans The Segal Group, Inc., December 14, 2010

• The primary focus of the study is to quantify the impact to the costs of the closed defined benefit pension plan in light of the funding mechanisms and cost sharing provisions of the statute. Additionally, the study highlights the human resource goals that can be accomplished using the DB or the DC approach to benefit design, in light of the aforementioned mission of the System as defined in statute.

Defined Contribution Retirement Plan Study for the New Mexico Educational Retirement Board Gabriel, Roeder, Smith & Co., October 2005

• This report includes a discussion of defined benefit and defined contribution plans, and presents analysis of a potential defined contribution retirement plan. It also provides information about the actuarial cost of such a program.

Study of Retirement Plan Designs for the State of Colorado Buck Consultants, November 2001

• The study was conducted pursuant to Senate Bill 01-149, which authorized the State Auditor to conduct a comprehensive study of defined benefit and defined contribution retirement plan designs for members of the Colorado Public Employees’ Retirement Association.

Benefit Review Study of the Nebraska Retirement Systems Buck Consultants, August 2000

• A review of benefits, funding, and investment management for major public employee retirement systems in Nebraska, conducted by the actuary employed by the Nebraska Public Employees' Retirement Board.

House Committee on Pensions and Investments, Texas House of Representatives: Interim Report 2000 Texas House of Representatives, 2000

• In 1999, following the 76th Legislature, Regular Session, the Pensions and Investments Committee was charged with evaluating the pros and cons of defined contribution plans that do not guarantee members any specific level of benefits upon retirement.

Report on the State of Texas Retirement Program

• Report on options for changing the retirement plan design and creation of a hybrid plan for Texas state employees, September 4, 2012

Pension Benefits Design Study by the TRS of Texas

• Study on the impacts of potential changes to the TRS of Texas defined benefit plan, September 1, 2012

Study of Wisconsin Retirement System

• Report of findings and recommendations to the Governor and the Joint Committee on Finance, June 30, 2012.

Fiscal Impact Report Kansas PERS, April 2011

• The information in this report is being provided to assist the Conference Committee on Senate Substitute for HB 2194 in its work of reconciling two bills relating to the long-term funding of KPERS – Senate Substitute for HB 2194 (Sub HB 2194), which was passed by the Senate, and House Substitute for HB 2333 (Sub HB 2333)

Retirement Plan Design Study Minnesota Statewide Retirement Systems, June 1, 2011

• 2010 Legislation required the three statewide retirement plans to complete a benefit design study. This study analyzes alternative retirement plan designs including defined benefit, defined contribution, and hybrid plans, comparing features such as overall plan design, costs, portability, income security/adequacy, investment performance, and recruitment and retention. This study provides actuarial analysis of the costs associated with transitioning from the current defined benefit (DB) structure to a defined contribution (DC) plan. The intent is to illustrate the proponent and opponent views of design options and does not make plan design recommendations.

A Comparative Analysis of Defined Benefit and Defined Contribution Retirement Plans Arizona State Retirement System, September 2006

• An analysis of the characteristics risks, and management of defined contribution and defined benefit retirement systems.

Kansas PERS Study Commission Final Report, Kansas Legislative Research Department, December 2011

• The Kansas Legislative Research Department was charged with a study and review of the advantages and disadvantages of implementing a defined benefit, defined contribution, or hybrid defined benefit/defined contribution retirement benefit plan or other plan option.

Five Options for Addressing 'Transition Costs' When Closing the MPSERS Pension Plan, by James M. Hohman, Mackinac Center for Public Policy, March 2012

• As of Sept. 30, 2010, the defined-benefit pension plan in the Michigan Public School Employees’ Retirement System had an unfunded liability of $17.6 billion. This unfunded liability and the large annual payments necessary to fund it suggest the plan’s liabilities should be contained by closing the plan to new entrants, much as the defined-benefit pension plan in the Michigan State Employees’ Retirement System was closed in 1997. future public school employees would be offered participation in a 401(k)-style defined-contribution plan. A concern repeatedly raised about closing the MPSERS plan, however, is the so-called “transition costs” involved. This paper discusses these “transition costs,” their validity and ways to minimize or eliminate them if they are considered barriers to the important and necessary reform of closing the MPSERS defined-benefit plan.

Actuarial Cost Analysis: Proposal for the Creation of a Hybrid Plan for New Hires, California Public Employees' Retirement System, February 2012

• Analyzes the effects on retirement costs of implementing a new hybrid plan for new hires that is consistent with the "Twelve Point Pension Reform Plan” issued by the Governor of California.

A Better Bang for New York City's Buck: An Efficiency Comparison of Defined Benefit Pension Plans and Defined Contribution Retirement Savings Plans, National Institute on Retirement Security and Pension Trustee Advisors, October 2011

• A report issued finds that New York City’s defined benefit pension plans can deliver the same retirement income at nearly 40% lower cost than a defined contribution 401(k)-type individual account.

See Also

Pension Costs Jump for San Diego, San Diego Union-Tribune, January 12, 2013