New pension Plan offers retirement benefits for U.S. public workers
March 06, 2023
The Reason Foundation released a report which presents a new pension plan design that could offer U.S. public sector workers retirement benefits regardless of their length of service.
According to the report, this plan combines elements of defined contribution and defined benefit pension plans. The focus of the plan is on providing employees with the target retirement income replacement ratio determined by the employer. The plan also offers a longevity annuity default option, which employees can opt out of, provided certain criteria are met.
The report noted that the mandatory contribution rates for both employer and employees (as defined by the employer), combined with the investment design and distribution controls, are all designed to minimize risks for employees while meeting the employer workplace objectives. To show how the plan would work when the target benefit accumulation is greater or less than required, the Reason Foundation analyzed both a shortfall and excess of $100,000 in plan accumulations at age 50 and found that the plan would better protect individuals by positioning them to adjust savings rates up or down as needed.
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