National Conference on Public Employee Retirement Systems

The Voice for Public Pensions


NCPERS: Pensions Help Provide Retirement Security, Not Retirement Anxiety

By Hank Kim, Executive Director and General Counsel, NCPERS

Given the fact that 77 percent of Americans 
support pensions for all workers, I think most would disagree with the argument that pensions aren't the answer to retirement anxiety.

Earlier this month, Bloomberg published an op-ed by Allison Schrager, senior fellow at the Manhattan Institute, titled "Pensions Aren't the Answer to Your Retirement Anxiety."  

Ms. Schrager claims that defined benefit (DB) pensions are overrated, but overrated by whom? The labor movement is only growing, per last month's poll from Gallup, with U.S. approval of labor unions at the highest point since 1965.

And even though the nation is deeply divided on many other issues, research from the National Institute on Retirement Security shows that support for pensions is consistent across party lines. Eighty percent of Democrats, 75 percent of Republicans, and 78 percent of Independents agree that all workers should have access to a pension.

It seems the core of Ms. Schrager's argument—that conveniently lacks any long-term U.S.-based research citations—is that DB pensions are ‘riskier' and less cost-effective for employers and taxpayers than defined contribution (DC) plans. But multiple studies show otherwise.

In fact, DB pensions provide more than twice as much benefit as DC plans at the same cost to employer. Our analysis of data shows that from 1975 to 2018, per participant assets grew from $5,634 to $184,432 in DB plans. The same figures for DC plans were from $6,432 to $59,186. 

In the public sector, if the U.S. had phased out DB plans, as Ms. Schrager proposes, costs to taxpayers would have been much greater. Employers would have had to contribute more than twice the amount to make up the difference between asset accumulation of $184,432 and $59,186.

Looking at ‘riskiness,' DC plans put all the risk—and cost—on the individual. There is of course risk with any investment, but with DB plans this risk is shared with the employer and a large pool of participants. According to research from the Investment Management Institute, administrative and investment costs for DC plans can also be more than four times higher than for DB plans—and the individual pays the price through deductions from their own account.

Ms. Schrager's rationale for phasing out public sector DB plans is that they are underfunded and crowding out funding for other public services. Yet, the data suggests that current unfunded liabilities of public pensions are sustainable. And, in cases where they are not sustainable, they can be made sustainable with modest fiscal adjustments.  Furthermore, we do not find any evidence of pension costs crowding out education or other public services.

Ultimately moving to a 401(k)-based retirement future, as Ms. Schrager suggests, would be harmful to our economy. There is ample evidence that undermining DB plans and moving to DC plans exacerbates income inequality. Income inequality puts a drag on the economy. When the economy turns down, everyone suffers.

She concludes “at least with a 401(k) we can know what to expect.” This is not the complacent attitude we, as the richest country in the world, should accept. We can provide a dignified retirement to our elderly through a three-legged stool consisting of a pension, a retirement savings plan like 401(k), and Social Security. At the end of the day pensions help provide retirement security, not retirement anxiety.   

Hank Kim
Executive Director and General Counsel
National Conference on Public Employee Retirement Systems (NCPERS)



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