P & I: DC plans are bad for retirement

An article in the industry magazine Pensions & Investments says it is a bad idea to rely on defined contribution pension plans for retirement income.

M. Barton Waring, managing director of client strategy at Barclays Global Investors, San Francisco, and Laurence Siegel, director of investment strategy at the $10.7 billion Ford Foundation, New York, assert that defined benefit plans are more efficient at providing retirement savings than defined contribution plans. Their working paper, titled “Don’t Kill the Golden Goose,” is under consideration to be published by the Harvard Business Review.

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“We regrettably but reasonably conclude that few employees can ever expect a secure and prosperous retirement, with reasonable income replacement, using the defined contribution-plan structure alone,” Messrs. Waring and Siegel wrote in their paper. “We are kidding ourselves when we even speak the phrase ‘defined contribution retirement plan.’ They aren’t retirement plans at all, but modest savings plans.”

This information has particular resonance at a time when many states seek to emulate the corporate 401k model for public employees' retirement plans, and when Rep. Jim McCrery, R-LA, chairman of the House Subcommittee on Social Security, is pushing privatization once again.