Experts at the Brookings Institution are offering a middle ground in the debate over public pension plans: the collective defined contribution plan.
Broadly defined — the details would have to be filled in by individual systems — the collective DC plan would give employees individual, portable retirement accounts that are pooled and professionally managed, according to a new report from Brookings that will be issued Wednesday.
Between underfunding of some public defined benefit plans and inadequate retirement security with many defined contribution plans, “we are trying to see if there's a way that we can take the best features of both, and come up with some sort of compromise,” Matthew Chingos said in an interview. Mr. Chingos is a fellow at Brookings and one of three authors of the report, “Improving Public Pensions: Balancing Competing Priorities.”
Mr. Chingos said concerns about defined contribution plans include investment risk and higher fees, while the downsides of defined benefit plans are underfunding and “unrealistic” assumed rates of return on investments. “If we're going to stick with something like defined benefit, we have to be more realistic about the return we're going to get,” Mr. Chingos said in an interview.
Brookings also will release a separate paper Wednesday offering state policymakers some political lessons learned from pension reform efforts in Utah, Rhode Island, New Jersey and Illinois.
