Revisiting contributory defined benefit plans: An old idea whose time has come (again?)

Throughout the history of employee retirement plans, changing market conditions have prompted employers to periodically rethink their retirement benefit plans. The earliest pension programs in the United States were noncontributory, defined benefit (DB) plans funded exclusively by employers. Then the Great Depression and the enactment of Social Security swung benefits in a contributory direction for several decades. A shift back toward noncontributory plans started during World War II, but with the advent of 401(k) plans, beginning in 1981, once again the momentum turned toward greater employee cost sharing and the defined contribution (DC) model. Today, thinking has begun to shift again, back to the idea that employees need the guarantee of a DB plan—but that they should still play a contributory role in the accrual of their retirement assets. This article traces the logic of these changes and proposes an updated version of the old contributory DB plans as an antidote to the insecurity of DC plans.