Defined benefit (DB) pension plans have many risks and, unfortunately, these risks are not always addressed and managed appropriately. In some cases, plan sponsors move to defined contribution (DC) plans as they feel these are risk-free but there is no such thing as a risk-free plan. It comes down to who is responsible for managing the risk and what other risks are created by the different plan types.
We will be discussing a variety of defined benefit pension plans, defined contribution plans, the various risks associated with each plan design, and the advantages and disadvantages of each. To make these discussion papers easier to read, we will be focusing on one plan design in a series of papers. The various discussion papers will cover the following plan designs:
• Traditional defined benefit plans
• Variable annuity plans
• Variable accrual plans
• Cash balance plans
• Defined contribution plans
Here is Part 1: