DC plans lead to less commitment, higher employee turnoverNews added by Benefits Pro on November 19, 2012
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By Paula Aven Gladych

A new research brief examines the workforce impacts of existing defined benefit pension plans to assess the likely effects of a switch to defined contribution individual accounts or cash balance plans.

The National Institute on Retirement Security’s “The Great Recession: Pressures on Public Pensions, Employment Relations and Reforms” found that public employers would attract a different labor force if they switched retirement benefits away from pensions because public employees would be less committed to their employers and thus less likely to invest in nontransferable skills that are critical to delivery of taxpayer services.

Not having a steady pension plan would also increase employee turnover, the report found. DC accounts and cash balance plans no longer defer compensation into the future and thus offer fewer economic incentives to employees to stay with public employers.

Moving away from a pension structure would result in higher costs for public employers and employees because of higher investment and administrative costs for alternative retirement plans. When asked, public employers and employees overwhelmingly choose to stay with pensions rather than moving to alternative benefits, illustrating the high value of pensions to public sector employers and employees.

"The Wall Street crisis hurt all investors, including pension systems that saw drops in their funding levels," said Diane Oakley, executive director of the National Institute on Retirement Security. "As a result, policymakers in nearly every state examined and enacted large-scale reforms to their workforce retirement plans - and nearly every state and locale maintained its pension plan. The research finds that this outcome isn't surprising because private and public pensions have a strong track record of simultaneously meeting employers' recruitment and retention needs and employees' economic security needs."

Christian Weller, study co-author and public policy professor at the University of Massachusetts-Boston and senior fellow at the Center for American Progress said, "State and local budgets are under intense scrutiny. Spending on public employee retirement benefits, in particular, is caught in the crossfire of these fiscal and political debates. There are some proposals for a radical switch from pensions to individual savings plans. Our research suggests that policymakers understand the value of existing pensions as recruitment and retention tools. They also are worried about the substantial costs of switching retirement plans. It is no surprise that policymakers generally rejected proposals to radically alter retirement benefits."

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs.

Originally published on BenefitsPro.com
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