Retirement Costs For Defined Benefit Plans Higher Than For Defined Contribution Plans

Source: U.S. Bureau of Labor Statistics, Beyond the Numbers, Pay & Benefits, Vol. 1 No. 21, December 2012

Beginning in the 1980s, a dramatic shift occurred in employer-sponsored retirement plans. This shift was away from traditional defined benefit plans and towards portable defined contribution plans, such as the popular 401(k). Reasons for this shift were due, in part, to costs and flexibility for both employers and employees. Employer contributions required for defined benefit pension plans can fluctuate based on plan investment returns. By comparison, employer costs for defined contribution plans are often based on a fixed formula that matches employee contributions.1  According to the Bureau of Labor Statistics (BLS) March 2012 Employer Costs for Employee Compensation (ECEC), private industry employers now spend more per employee hour worked for defined contribution plans than for defined benefit plans.2  However, a slightly different picture can be revealed when ECEC data are averaged by plan participants only (those employees that use or are enrolled in a plan).