Friday, September 25, 2015

New paper: “How Has Shift to Defined Contribution Plans Affected Saving?”

The Center for Retirement Research at Boston College has released a new Issue in Brief:

“How Has Shift to Defined Contribution Plans Affected Saving?”

by Alicia H. Munnell, Jean-Pierre Aubry, and Caroline V. Crawford

The brief’s key findings are:

  • Many believe that people are saving less for retirement due to the shift from defined benefit (DB) to defined contribution (DC) plans.
  • The analysis uses National Income and Product Accounts data, with adjustments, to compare DB benefit accruals with DC contributions from 1984-2012.
  • The results show that the percentage of total salaries going to retirement saving has declined slightly during this period.
  • But if returns on asset accumulations are included, the annual change in pension wealth is relatively steady, so the shift to DC plans has not led to less total saving.
  • What has changed is that individuals, rather than plan sponsors, now bear all of the risk.

This brief is available here




Arne said...

"What has changed is not the amount of saving going on, but rather who is bearing the risk."

I think it is also important to determine whether the benefits are still reaching the same breadth of workers. DC plans only work for people who believe that they can afford to contribute.

Andrew G. Biggs said...

Two thoughts: participation in DC plans today is higher than DBs were at their peak, so by that measure more people will be getting benefits. Moreover, participation in a DB plan doesn't mean you'll get a meaningful benefit from the plan, because DBs have vesting requirements and because their benefit formulas are backloaded. Even after 15 years of participation, DBs often pay a pretty low benefit.