The paper lists four reasons defined benefit plans are more cost effective and efficient than defined contribution plans:
• In a defined benefit plan, mortality risk is shared by the overall participants. Put simply, when calculating liabilities, a corporation can determine the average life expectancy of participants. Those who die before the average age help pay the benefits for those who live beyond it. In a defined contribution plan, mortality risk is placed solely on the shoulders of the individual participant.
• It's cheaper for a pension plan to buy annuities than it is for an individual to do so.
• Separate-account fees for pension plans are significantly less than fees from mutual funds typically offered in defined contribution plans.
• Assets in pension plans are overseen by skilled financial professionals, while individual defined contribution plan participants might not have the financial background to properly manage assets.
"When a DC plan replaces a DB plan, those (advantages) are gone," said the authors in the paper.