Who Chooses Defined Contribution Plans?

This chapter analyzes the decisions made by a group of 50,000 workers who currently have a choice between a defined benefit (DB) and a defined contribution (DC) pension system. This study is based on the experience of employees in the State Universities Retirement System (SURS) of Illinois, where workers make a one-time, lifetime, irrevocable choice among three retirement plans: a traditional formula-based DB plan; a “portable DB plan,” which is slightly less generous than the traditional DB program if one retires from the system, but more generous if the worker takes an early lump-sum distribution; and a completely self-managed DC plan. Individuals who fail to make an active choice within the first six months of employment are automatically defaulted into the traditional DB plan. In recent years, numerous proposals have been forwarded to fully or partially replace the defined benefits provided by the U.S. Social Security system with personal retirement accounts (PRAs). The SURS system looms large as part of a participant's lifetime financial plan.