Studies Support DC DB-ification

Written by: Nick Curabba

The very good and frequently updated Retirement Plan Blog by Jerry Kalish at National Benefits Service last week reminded us again that the world as we know it is about to change. Or maybe it already has.  Mr. Kalish suggests that in the coming years, the new buzz word that will be on the lips of everyone in the retirement security marketplace will be "decumulation," or the act of converting a lifetime of savings into retirement income for life.

Two recent studies from financial services firms back his claim up, too.  One, entitled "Creating Next Generation Glidepaths for Defined Contribution Plans," by Seth Ruthen at PIMCO, argues that "fundamental changes in the U.S. retirement system are forcing individuals to assume more risk and responsibility for providing their own retirement income."  The other, by the Russell Investment Group, is entitled "401(k)s: The Launch of Version 2.0," and it asserts that the purpose of the 401(k) plan has changed over time to become the "primary savings vehicle for millions of Americans," yet many individuals are not equipped to manage their own savings and retirement income strategies.

Both studies similarly suggest that at least one partial response to this rapid transformation of the marketplace will be a heavier reliance on features pulled from the defined benefit plan world.  As this revolution in the retirement plan landscape continues, both studies provide some interesting theoretical ideas and practical advice on how to bridge the gap between the "old" system and the "new."