Why DC plans are all the rage
Key factors behind the trend towards DC plans are as follows:
q Demographics – Plan sponsors will continue to switch from
pay-as-you-go defined benefit (DB) plans to DC plans in order to confront the significant funding problem that the ageing baby-boom population presents.
q Employee flexibility – DB plans were designed to benefit the
long-term, permanent employee. DC plans are more attractive to both the employer and the employee as
workers become more short-term, part-time and mobile in nature than previously.
q Costs – Employers will increasingly use DC plans to reduce the costs of providing a retirement benefit to employees. In some countries – France for example – specific
regulations will substantially increase the costs of guaranteeing DB pensions and make DC plans more attractive by comparison.
q Regulatory – DB arrangements
typically carry more complicated regulatory requirements and
complex compliance issues than
DC plans, such as minimum
q Legislation – In several countries specific legislation encourages employers to adopt the DC model. Governments are reducing
retirement benefits in many cases