USA: +1 (725) 712-1730 
Sign in
In the wake of turbulent financial times, policymakers in your state have been talking about shifting from a defined benefit pension plan to a defined contribution pension plan or a hybrid alternative for new state employees. You work for a state legislator who asks you to research the pros and cons of making the change.
Access the Center for Retirement Research at Boston College at http://crr.bc.edu and search for the Issue Brief entitled “A Role for Defined Contribution Plans in the Public Sector.” Prepare a memo for the legislator that address his request.
Expert Answer
Defined contribution plans are like savings account in which deposits are made both by the employer and the employee. From the view of risks associated, this type of plan carries high risk. The reason being that the employees select investment options for their funds. In the times of financial crisis these investments are lost. The administrative expenses associated with defined contribution plans are high due to investments made in mutual funds. The employees who join this plan are not much qualified and keeps on changing jobs due to which the retirement are affected. Thus we see that defined contribution pension plans have very little benefits and are not appropriate for pension schemes.
