Leading Retirement Think Tank Changes Tone on 401k(s)


Research conducted by the Center for Retirement Research at Boston College has traditionally suggested that the trend of shifting from defined benefit plans to defined contribution plans harms retirement security and savings.

But in a new paper, Center director Alicia Munnel says new research has led her organization to change their tune: the paper says that retirement savings have not been harmed by the shift to DC from DB.

The paper does acknowledge, however, that DC plans shift risk to the participant.

BenefitsPro summarizes the findings:

The Center and its director, Alicia Munnell, have been producing data for years showing that the shift to 401(k) plans was resulting in less retirement savings.

The new paper looks at data on defined benefit accrual rates from the National Income and Product Accounts between 1984 and 2012 and compares those rates with defined contribution assets over the same period.

Munnell and her team of researchers conclude that the percentage of deferrals of total salaries has slightly declined over time as more sponsors shifted to defined contribution plans.

But that simple comparison doesn’t provide a full picture. The researchers then set out to assess returns on those deferrals.

Because more 401(k) and defined contribution assets were invested in equities throughout the period, the total annual change in pension wealth has been relatively steady, meaning the shift to DC plans has not led to less total saving.

“We are going to have to change our story,” write Munnell and the two other researchers.

Read the full paper here.


Photo by TaxCredits.net

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