The evolving role of defined contribution plans in the public sector.

• Position: News & Numbers

The role of public-sector defined contribution is changing. State and local governments have traditionally offered defined benefit (DB) plans that provided employees with an adequate retirement income, and defined contribution (DC) plans were usually supplemental savings plans. But as both employers and employees in the public sector face increasing financial pressures, and employers modify primary pension plans, DC plans are becoming an increasingly important part of retirement saving. The Evolving Role of Defined Contribution Plans in the Public Sector--a joint research project of the Arthur N. Caple Foundation and the National Association of Government Defined Contribution Administrators, conducted by the Center for State and Local Government Excellence--looks at the major issues and considerations concerning DC plans in state and local government.

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The report looks at the reform process in four governments and finds that structural change makes sense for the government, so long as reforms are strategic and thought out over the long term. Forty-three states enacted some kind of pension reform between 2009 and 2011, often resulting in lower levels of retirement income for new employees, current workers, and retirees. What constitutes an adequate retirement income for employees varies, according to the report, which also notes that few people have the skills needed to effectively manage their own...