pension plans, you will find that they are DC plans in disguise
(sometimes referred to as 'cash balance accounts').
You have that backwards; cash balance plans are defined benefit plans that look like DC plans.
They were originally developed in the mid 80s (by Kwasha Lipton)to counter DC plans by correcting a major flaw that regulators failed to fix; how the benefits that are paid out to anyone in a DB plan who terminates before normal retirment age---typically 65, are determined and calculated.
They are legal and seem fair, but are not fair at all.
This flaw is serious and should have been fixed. There were originally good reasons for it; but they dissappeared long ago.
There is nothing inherent to a DB plan that needs to have this flaw. On the contrary it was not correctly identified and corrected in a timely fashion and thus it became an even bigger problem---much like Social Security's failure to have advance funding and laws, for example. Few people want to talk about it, including pension consulting actuaries.
The problem you alluded to is a misnomer---'portability'---a euphemism that is a great example of why nobody knows what anybody is talking about any more in so many areas. (It's vital that we talk accurately about many of these things, otherwise they get worse and worse; then we lurch into exactly the wrong solution)
The accrued benefits that are protected by law in traditional DB plans have present values (PV)that provide almost nothing for a young person leaving at a young age---and a much higher PV for older employees---but both get screwed if they leave before NRA.
The CB defined benefit pension plan was an early attempt to correct for this deficiency.
Unfortuantely between then and now there is some disturbing evidence that these CB plans have not bben doing what they originally were intended to do--redress this problem---volutarily.
The point here, is that LAWS are needed to force this problem to be corrected---bu they must also be done at the same time as simplification of some of the horrendous laws that were passed to fix the so-called 'portability' issue---a case of the wrong identification of the source of the problem and bad laws making it even worse.
Some of these laws were passed by well-meaning, but ignorant Congress people and others were passed by smart but perfidious congress people.
Also---DB plans need the very same tax breaks that were given to DC plans, namely, salary reduction, to place them on a level palying field with DC plans, like the 401(k).
This is not the place to discuss this issue, but many in my profession are discussing it as we speak---the result of some bad publicity for my profession recently published in the WSJ.
has offered a poorer return compared to the 401K since its return
is fixed. I mean no offense, but I want my retirement money out
of the hands of actuaries and politicians, including private and
public plans. Both PayGo and DB plans are inferior to a DC plan
invested in index funds. A DC plan invested in index funds has very
low cost and no actuary/investment manager/politician is required.>
The rate of return offered on the CB should be related to the investment strategy of the fund--namely much higher than what seems to be credited on many CB plans. That needs to be corrected.
RE index funds, they are useful and great so long as everyone doesnt do it. If everyone did do it, or if invstements of any magnitude are done using it---goodbye good analysis and goodbye effiecnt markets. You woiuld have a market bubble becuse it is clearly a momentum-based strategy---and these are what caused the 1987 market crash---first with DB plans using a dumb inestment strategy, then with an enormous follow-on with panicked individual investors in---guess what---401(k)s!
Anyway...there is a lot to talk about here---but I am firmly against changing SS into a DC plan. It would be a very scary situation all round.
If you wish to continue this discussion---do so privately, or get on the Society of Actuaries Forum (soa.org.
I do not know how long this forum will continue---but as you see I could go on for days (some say months) on this subject. Some say I alreday have.
I ahve beeen at it for morew than 4 years now--and have accumulated literally thousands of articles and books on the subject---not so much to learn anything about SS---I studied that in 1964---but rather to understand how people can get so tangled in their own underwear that they cannot see where they are going.
That is the way in many things so why should it be a surprise?
SS is, by the way, the single biggest issue in the world today, short of issues of war and peace.
How does 100 trillion dollars of unfunded obligations worldwide sound to you---3 times the entire world's GNP?
If done wrong---look out next century. We will see many more wars and those things that lead to them.
