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Pension Funds

Vast majority of public employees choose DB over DC where option is available

Most public sector employees with the option of participating in a defined benefit plan or defined contribution plan choose the DB plan, said a report released Wednesday by the National Institute on Retirement Security and Milliman.

Among the seven states studied where employees are offered both options, DB plans were picked up by 75% or more of employees hired in 2015. In fact, from 2006 through 2015, DB pickup rates have been 70% or more every year for new hires in each of those states — Colorado, Florida, Michigan, North Dakota, Ohio, South Carolina and Utah, the report shows.

The report notes that many employees in those states who did not actively elect one plan or another were defaulted into the DB plan. However, the experience in Washington state, which was not part of the initial seven states, shows that even when the DB plan is not the default option, most newly hired employees still opt for the DB plan.

"When employees have a choice, pensions continue to win in a landslide," said Jennifer Brown, manager of research for NIRS and co-author of the report, in a news release on the results. "These findings indicate that public employees highly value their pension benefits, which is consistent with NIRS' polling that finds Americans strongly support pensions for providing economic security in retirement."

Ms. Brown added: "DB pensions remain the most cost-effective way for public employers to provide a modest and secure retirement benefit for employees who typically earn less than comparable private sector employees."

According to the report, advantages of DB plans over a DC plans include lower expenses, professional asset management and longevity risk pooling.

Within the seven states studied, NIRS and Milliman analyzed data for the Colorado Public Employees' Retirement Association, Florida Retirement System, Michigan Public School Employees Retirement System, North Dakota Public Employees Retirement System, Ohio Public Employees Retirement System, Ohio State Teachers Retirement System, South Carolina Retirement Systems and Utah Retirement Systems.

The report can be accessed on NIRS' website.