Public Sector Employees Overwhelmingly Choose Pensions Over 401(k)-Type Accounts

Public Sector Employees Overwhelmingly Choose Pensions Over 401(k)-Type Accounts

Public sector employees overwhelmingly chose pension plans over individual 401(k)-type plans, according to research from the National Institute on Retirement Security.

In a study called Decisions, Decisions: An Update on Retirement Plan Choices for Public Employees and Employer, researchers found even when public employees’ retirement plans default options favored a defined contribution (DC) plan, most employees still went with a defined benefit (DB) pension plan.

According to researchers, some states are considering moving from a DB-only to a DC-only model to address an unfunded liability, but researchers said their findings suggest the public sector is unlikely to move away from pensions like the private sector has for two reasons; 1) There is strong employee support for pensions. 2) DB pensions are the most cost-effective way for public employers to provide employees with secure retirement benefits. DBs also have much longer investment horizons than DCs.

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