Letters to the Editor

Defined contribution plans underfund workers' retirements

Jan 17 2022, 3:57 PM

David Flemming’s “Stopping the bleeding with pension reform” (VTDigger, Jan. 3) is an exercise in semantic misdirection and strategic omission. He tells you that defined contribution pension plans — typified by 401(k)s — solve the problem of traditional “defined benefit” pension plans being underfunded. 

He avoids telling you why that is: Defined contribution plans are, by definition, always “fully funded” no matter how paltry the amount they contain. A defined contribution plan containing $50 is still “fully funded” because that’s all the retiree is due.

Defined contribution plans may always be “funded,” but workers’ retirements sure aren’t. Rather than receiving a set amount per month, say $1,200, they have to hope and pray that whatever amount is in the defined contribution plan will keep them from starving. Flemming leaves that tidbit out as well.

Employers contribute far less money to defined contribution plans than they do to defined benefit plans, meaning more retirees will struggle after (if?) they retire. Fewer employees will ever be able to retire as defined contribution plans replace traditional defined benefit plans. The grave will end up being their retirement plan.

There’s a good reason that state Treasurer Beth Pearce is leery of replacing defined benefit plans with defined contribution plans. There’s also a good reason that a representative of a free market think tank like the Ethan Allen Institute advocates for a system that transfers financial responsibility from employers to employees.

The best that can be said of defined contribution pensions is that they are better than having no retirement account at all.

Lodiza LePore