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Not every worker is offered a choice

Public-sector employees heavily favor the defined benefit pension option in seven states where a choice was offered.

This should be no surprise. Most private-sector employees likely also would choose a DB option over defined contribution plans, but DB plans have largely disappeared from the private sector.

According to a survey by Milliman and the National Institute on Retirement Security, 75% of employees hired in 2015 in the seven states chose the DB option or were defaulted into it.

Choosing the DB plan makes sense for most employees, especially public-sector workers. Most employees are ill-equipped to invest their retirement savings despite education programs offered by employers. They are also ill-equipped to handle the investment risk. On the other hand, employers have the resources to hire investment expertise and the financial resources to absorb any temporary investment setbacks.

For public-sector employees, the DB plan makes more sense because of the greater job security, so their retirement benefits will grow smoothly throughout their careers with little chance of disruption by layoffs. Between 2001 and 2009, the public-sector layoff and discharge rate was only about one-third of the private-sector rate, according to a paper by Chris Edwards of the Cato Institute, based on Bureau of Labor Statistics figures. Alicia H. Munnell of Boston College estimated the chance of being laid off was 2 percentage points higher for private-sector workers.

Because DB plan benefits usually are tied to salary and years of service, employees laid off or changing jobs take a hit.

The one advantage of DC plans is their portability. Employees can take their accrued assets with them and often can roll that money into the DC plan at a new job, or an individual retirement account. The portability aspect somewhat offsets the disadvantages of DC plans for private-sector workers, but not completely.

Unfortunately, the competitive global economy has made the DB plan an endangered species in the private sector, and private-sector employees are rarely offered a choice between DB and DC plans.