Moving from a Defined Benefit to a Defined Contribution Retirement Plan in the Case of a Highly Unionized Public Entity

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In the private sector, there has been a significant move away from offering traditional pension plans – and toward providing instead a defined contribution plan. Even when hybrids like cash balance plans are included, the percentage of employees covered by defined benefit retirement arrangements is estimated to be less than half of what it was twenty-five years ago. The percentage of employers sponsoring such benefit plans has fallen even more. At the same time, in the public sector, traditional approaches to retirement benefits continue to dominate. This is despite the cost advantages to the governmental employer in moving to a defined contribution plan. While one can argue that there is no longer a need for public entities to offer a traditional pension plan to be competitive (at least with the larger private/business sector), a reluctance to change is apparent. This can particularly be the case when the entity is highly unionized - even in the private sector, unionized employers are more likely to continue to feature a defined benefit plan.

This paper describes the approach of one public employer as it sought to reduce its retirement costs by moving from a traditional pension plan to a defined contribution plan while still providing a strong, competitive benefits package. Not only is it notable that this was eventually accomplished in the context of a largely unionized entity. In addition, one might argue that the more flexible and portable nature of the defined contribution retirement benefit will make the employer more competitive in attracting quality early and mid-career workers. 

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