Your statement that the private sector is moving away from defined benefit pension plans as shown by the largest corporations changing to defined contribution plans is completely false, as is a similar statement in the website run by a conservative group that you reference.
It's one of many statements that are made in which the devil lies in the details.
That statement is correct only for small plans. It is flatly false for large plans.
For very large plans (Fortune 100 companies) around 90% of these organization still have defined benefit pension plans, and only 10% have DC plans, mostly 401(k)s to supplement them. This comes from a recent survey of Wyatt. Similar such surveys from other large consulting firms such as my former one, Towers Perrin, corroborate this.
Around the beginning of the 90s around 95% of the Fortune 1000 had DB pensions. There has been some slight erosion---but no wholesale move out of them. They have been changing many of these plans to Cash Balance plans, to enhance the benefits payable at termination, but these plans are still DB plans, not DC plans.
Defined benefit pension systems, with all three components, not just the benefit formula component, are the ideal way to provide pensions to large scale groups of people, especially groups that are non-homogenous (as the USA population is).
They are less well suited for small plans than are defined contribution plans, specifically the 401(k) plan, because they have higher fixed costs and because 401(k) plans have a salary reduction feature that DB plans do not, thus making employee contributory plans feasible.
Without the latter in DB plans, the individual participant is taxed twice. DB plans are severely disadvantaged if they wish to have employee contributory plans because of this favored treatment of the 401(k).
It is especially interesting to note that it was not Congress that gave this favored treatment when the enabling law was passed in the late 70s, but a staff writer in the regs several years after, in the Reagan administration.
As one person in a position to know in my former company, Towers Perrin, said to me, there are some people in government that do not like DB plans but simply love DC plans.
Why?
Pretty simple.
They love them because the management fees, commissions, and administrative costs of such plans, per dollar of invested assets are seriously higher---as much as 10 times to more than one hundred times as high.
The retail sector of the financial service industry saw an opportunity to come back in the pension area in the 80s after years of making much less money in the DB pension area.
For decades prior to that regulation, I and many others many had argued unsucessfully to our government that DB plans should allow employees to contribute with after-tax pay---in other words a salary reduction for tax purposes.
It should be noted that prior to that reg permitting the salary reduction DC plans were a big flop with employees.
Lastly, your factual statement taken from your conservative website to the effect that assets are now roughly evenly split between defined benefit pensions and defined contribtion plans thus 'proving that people prefer DC plans, is accurate, but highly misleading.
The truth is that a major portion of DC plan assets is employee money---whereas virtually all of DB plan assets are compnay contribtions.
In short---many employers like DC plans over DB plans because THEIR costs are lower. In many companies there is little employer match---just enough to get the partcipation up at the low pay ends to justify the participation at the high ends, since the salary reduction for high paid people is so much more valuable and also because they have a lot more discretionary income to save.
You might say that many companies latched onto DC plans as a way to cut their costs and their responsibilities for their employees.
But here's the catch for those employers.
If Social Security ever becomes privatized by changing it to a DC plan---these same companies will pay dearly, Why? Because the administrative costs of Dc plans are much larger and they are going to be required by law to admininisiter them.
Many companies also have no experience with these plans---70% of American employees are not currently covered by any pension plan---DB or DC.
Wait till small business USA finds out.
In addition to that well-kept secret, large sponsors of DB plans typically integrate their benefits with Social Security. If Social Security provides much less benefits, their costs can escalate very rapidly.
Under DC plans, a large proportion of workers will get much smaller benefits---costing these large companies bundles.
Ever hear of the law of averages---or the normal distribution?
Last point: Are you aware that the last few years have been an extraordinary time for invesdting in the stock market and might well never be repeated.
The market is, by all indications, highly overvalued.
Should the emarket collapse--wouod you still be so sure you love DC plans?
In a DB plan, actuarially funded and covering most or all the liabilities, market downturns do not affect the benefits paid out.
DB plans are perfectly suited for Social Security---but only those funded properly anfd with laws protecting the participants.
Its common sense---that alas is very uncommon within the beltway.
