June 5, 2012 – StateImpact, a reporting project of NPR, looked at a bill in New Hamshire seeking to replace the DB pension plan with a DC plan. StateImpact collected sources, including A Better Bang for the Buck report, to provide lawmakers and the public with reliable facts on pensions.
NIRS’ Better Bang for the Buck report shows that a switch from a defined benefit pension plan to a defined contribution plan would not be the most cost effective choice for New Hampshire lawmakers. DB plans are more efficient because of the following factors:
- When an employer pools all of their employees’ investments and risks in a single pension fund, they can spread risk over the long term, saving in the good years and spending that in the bad years.
- The pooled investments also prevent over– and under-saving, which is what happens with DC plans because individuals can’t predict when they will die.
- DB plans have lower management fees because of what economists call “economies of scale.” Like buying anything in bulk, it’s cheaper to manage all of the money at once, rather than managing hundreds or thousands of individual investments.
Read the full story here .