Since 2009, nearly every state modified its retirement systems to ensure long-term sustainability, most often by increasing employee contributions, reducing benefits or both, according to the National Institute on Retirement Security (NIRS).

During these deliberations, some retirement systems faced pressure to move from defined benefit (DB) pension plans to defined contribution (DC) 401(k)-type individual accounts, in part or whole. Advocates of switching from DB to DC plans position the change as reducing employer costs for unfunded liabilities, but the move to DC accounts does nothing to reduce plan liabilities on its own. At the same time, significantly reduced retirement benefits under the DC savings plan create other workforce challenges, such as difficulty in recruiting and retaining public employees, NIRS says.

The NIRS studied the case of Palm Beach, Florida, which it says offers “an important cautionary tale on the detrimental impacts of switching public employees from DB pensions to DC accounts.”

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