Floods and Deserts: Why the Dream of a Secure Pension for Everyone Is Still Unattained

Laurence Articles

Why have defined benefit (DB) pension plans, arguably the most elegantly engineered financial service ever created, stumbled so badly? Less than 50 years after achieving wide acceptance and providing predictable and secure benefits to their participants, many DB plans have been terminated, and others struggle to attain adequate funding levels.

Many of the terminated DB plans have been replaced with defined contribution (DC) plans, which offer a very different and, some argue, inferior set of characteristics. Were DB plans undone by evildoers? Did misaligned incentives overwhelm the governance of well-designed plans? Are DB plans doomed by design? What went wrong?

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