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Defined contribution vs. defined benefit pensions

Today’s newsletter from the Heartland Institute highlights research and commentary on two kinds of government employee pension plans: defined contribution vs. defined benefit.

According to the Pew Center on the States, state governments in US have accumulated over $700 billion in unfunded liabilities for pension or other retirement benefits. Likewise, thousands of local governments are facing the same pension crisis, although the accumulated figure is not reported.

The underlying cause of the problem is that governments traditionally use “defined-benefit” pension plans, which guarantee employees a pre-set benefit amount upon retirement. The “overly generous” benefits were not funded up front, however, and thus the costs were push onto future generations of taxpayers. [Jerry: The crisis only looms larger over time, with more people retiring, longer life expectancy retirees have, and skyrocketing health care expenses.]

Accordingly, the Heartland Institute proposes that governments should following the private sectors’ lead and switch to a “defined-contribution” system, which are fully funded up front and thus more transparent and sustainable for governments and taxpayers.

Besides, the newsletter offers additional information on both pension systems:

        • Plight of the Benefits
        The Gathering Pension Storm
        Defined Contribution Pension Plans in the Public Sector
        Pension Time Bomb
        The Ticking Time Bomb in State Pensions
        Public-Sector Pension Crisis Worsens
        Let Employees Control Future of Retirements
        Pension Liabilities Loom as States Try to Help Retirees

Comments

I moved from the UK to the US 15 years ago. While I was in the US I was still getting pension contributions into my UK pension fund. I am coming up to retirement and will be transferring my UK pension into a QROPS (more info on this site www.qropsadviser.com) even though I have a defined-benefit transferring it will allow me to invest myself and last a great deal longer. In the UK defined-benefits are almost extinct so my sons are finding ways to create their own pension

I found your site via yahoo thanks for the post. I will save it for future reference. Thanks Mutual Funds is our specialty.

Pensions for expats have changed drastically since 2006 with the introduction of QROPS and there is no one size fits all. Seek independant advice as there are so many ways to set up a QROPS fund it will make your head spin...
QROPS is our main focus so please get in touch if you require some help...

An ageing population and better healthcare has been a nightmare for pension funds and some companies now have larger pensions defecits than their market cap due to these defined benefit schemes.

If you have ever worked in the UK, you can get out of the system and limit your liability to UK taxes through a QROPS transfer. You can also convert into USD or EUR if you want. This is especially useful for those living in the U.S. as you won't have currency fluctuations eating into your pension.

QROPS Specialists will help find the pension administrators with the lowest fees to maximize your pension pot. You can find more info at www.qropsspecialists.com

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Hubert H. Humphrey Institute of Public Affairs