DB plans gain in popularity

Companies could start offering more traditional pensions

By Michael Pramik, Ohio Public Employees Retirement System

Nov. 22, 2023 – Here at OPERS, we’ve always believed that our members should give thanks for having a defined benefit pension, one that’s been taken off the table at many corporations over the years. Recently, however, more companies are acknowledging the benefits of DB plans which could signal a private-industry pension resurgence.

For instance, IBM said this month that it was canceling contributions to its workers’ defined contribution plan in order to support a type of defined benefit plan. The company will fund the investment, which reports say will be a cash balance plan, without employee contributions. In return, workers will receive a stable income stream when they retire and will benefit from having the fund professionally managed.

OPERS’ Traditional Pension Plan, to which about 98 percent of our members belong, is a DB plan. It is professionally managed and provides a reliable monthly benefit that our members can’t outlive.

Over the years, however, the DB plan has become something of a dinosaur in the corporate world.

In a recent Wall Street Journal commentary, journalist Telis Demos noted that in the early ’80s, 88 percent of Americans had retirement coverage from a pension plan. That percentage dwindled to a mere 11 percent last year for those in private industry.

That could be changing. J.P. Morgan says that the top 100 corporate plans returned to better than full funding last year as interest rates skyrocketed. Thus, Demos believes it’s time for more companies, small and large, to reconsider the DB plan.

So does labor economist, educator and author Teresa Ghilarducci, long a proponent of DB plans. Ghilarducci recently wrote in Forbes that “DB plans are better for workers than DC plans,” saying that defined benefit plans earn a higher risk-adjusted rate of return than their counterparts. She noted the change of heart by IBM and said others could soon follow suit.

That’s not to say DC plans can’t be a great retirement option. While the DB plan is the overwhelming plan of choice among our members, we believe it’s important to offer a defined contribution option for those who want to direct their own investments and are willing to take on investment risk. Thus, new members can choose between the Traditional Pension Plan and the Member-Directed Plan.

As a reminder to our members and retirees, OPERS will be closed on Thanksgiving Day and the day after Thanksgiving. The OPERS lobby and phone lines will close at 2:30 p.m. on Wednesday.

We’ll reopen at 8 a.m. on Monday. OPERS wishes everyone a happy Thanksgiving.