Market Risk and Retirement Plans
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Date
2022-01-13
Journal Title
Journal ISSN
Volume Title
Publisher
Private Enterprise Research Center, Texas A&M University
Abstract
At retirement, the goal of most workers is to be able to pay their anticipated living expenses using their employer-sponsored retirement plan, savings, and Social Security. Today, most workers’ employer-sponsored retirement plans are defined contribution, or 401k, plans, yet some workers are still enrolled in defined benefit plans, otherwise known as pensions. In this issue of PERCspectives on Policy, Dennis Jansen and Andrew Rettenmaier discuss how both types of plans are subject to market risk by simulating the investment outcomes for each plan under similar constraints. The authors illustrate that the pension plan delivers a defined benefit to its participants that exceeds the benefit produced by a defined contribution plan in 60% the simulated outcomes, but the pension plan itself falls short in 46% of the outcomes and also has the distinct disadvantage of non-portability.
Description
EconomicStudies_Analysis
Keywords
Market risk, defined benefit plans, defined contribution plans, pensions, EconomicStudies_Analysis