Industry News

On June 3, 2021, the National Conference on Public Employee Retirement Systems (NCPERS) published its research series report, The Top 10 Advantages of Maintaining Defined-Benefit Pension Plans: 2021 Update. The report updates the original 2011 NCPERS research series which intends to demonstrate to policy makers that defined benefit (DB) plans are: 1) more efficient; 2) provide greater retirement security than defined contribution (DC) plans; and 3) support state and local economies and revenue.

The report addresses the question, “Should state and local government defined-benefit plans be eliminated and replaced with defined-contribution plans?” It finds that switching from a DB plan to a DC plan would likely result in significant, long-term, detrimental effects on state and local governments, their employees, economies, and ultimately the taxpayers.  After discussing how DB and DC plans work, the report examines the major advantages of DB plans compared with DC plans.  

The report concludes that the real question is, “How can state and local governments efficiently provide secure, sufficient, and sustainable retirement benefits for their employees?”  It indicates that “state and local governments need to stabilize pension liabilities through funding their plans without skipping contributions. They should conduct actuarial valuation annually and stress test every few years. On top of that they should establish stabilization funds to make sure that the ratio between pension liabilities and economic capacity is stable. Above all, state and local governments need to bring their state and local revenue systems in sync with their economies.”

The report is available here.