Moving Pensions From Defined Benefit to ‘Defined Ambition’
The British, Canadians and Dutch explore a way to keep what's good about pensions while avoiding the crises.
Making life after work a little less work.
Photographer: Krisztian Bocsi/Bloomberg
Let’s run through some fun retirement-savings jargon: DB, for defined benefit, means a traditional pension plan. The monthly payout is defined from the start and guaranteed by the plan sponsor. DC, for defined contribution, is an individual retirement account such as a 401(k). The amount of money you put in is defined by you, and maybe your employer chips in a match. After that, good luck!
A lot has been written in recent years about the drawbacks of both systems. DB plans require providers to take on big, long-term risks, which private employers in the U.S. have generally decided they don’t want to do anymore and some state and local governments have done an awful job of managing. DC plans put all those risks on the shoulders of individual workers and retirees, with predictably mixed results.