Corporate DC matching ‘penalizes the poor,’ keynote speaker says

Defined contribution plan sponsors can improve their plans by revising or adjusting some popular strategies and considering new ones, said Meir Statman, professor of finance, Santa Clara University.

Sponsors should make corporate contributions "unconditional on employee contributions," Mr. Statman said Monday during a keynote address at the Pensions & Investments' West Coast Defined Contribution Conference in San Diego. "Matching penalizes the poor."

When asked during a brief question-and-answer period following his speech, Mr. Statman doubled down on his remarks. "The notion of a match is a stupid notion," he said.

Mr. Statman noted that trend of employers moving to defined contribution plans from defined benefit plans has shifted investing risk to workers, but it also has enabled employers to reduce their contributions to retirement plans.

The DC employer contribution is about 4% of participants' pay, but the DB contribution has been basically double that amount, he said.

However, Mr. Statman said more DB plans isn't the answer. "I don't advocate a return to defined benefit plans," he said. The best solution is a mixture a Social Security and DC because the former provides downside protection, while the latter offers upside potential.

He said plans should move away from revenue-sharing to a system in which administrative costs are paid directly and equally by each participant.

Among other suggested changes to the DC system, Mr. Statman advocated ending the 10% penalty on participants who withdraw their money before age 59½.

Mr. Statman also supports the idea of banning or severely restricting early withdrawals from DC plans. He noted that some countries — Germany, Singapore and the U.K. — prevent such withdrawals except in the case of a participant being disabled or terminally ill.

He added that "it's worth considering" making DC plans mandatory, as is the case in Australia.