Retirement plan design can make or break an employee’s ability to maintain their standard of living in retirement. Over the past several decades, many private sector companies implemented a complete overhaul in retirement plan design, shifting from defined benefit pensions to 401(k)-style defined contribution accounts.

Originally designed to supplement rather than replace pensions, 401(k) plans have become the primary employer-sponsored plan for many U.S. workers. This transition meant sacrificing a number of important features of pension plans and economic efficiencies. Lost were key attributes unique to pensions that strengthen retirement security: lifetime income, longevity risk pooling, mandatory participation, pooled investments managed by professionals, disability and survivor protections, and targeted income replacement. These inherent advantages of pensions mean that these retirement plans can deliver nearly double the retirement benefits at the same cost as compared to a 401(k)-style defined contribution plan.

As a result of the shift from pensions to 401(k) accounts, more and more Americans are far off-track in terms of saving enough on their own to ensure a secure retirement. According to the Boston College Center for Retirement Research, half of today’s households will not have enough retirement income to maintain their pre-retirement standard of living, even if they work to age 65 and annuitize all their financial assets. And, Americans understand their precarious retirement position. Recent national polling finds that more than two-thirds of Americans (67 percent) say the nation faces a retirement crisis, while 68 percent say the average worker cannot save enough on their own to guarantee a secure retirement.

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