In the wake of turbulent financial times, policymakers in your state have been talking about shifting from a defined benefit pension plan to a defined contribution pension plan or a hybrid alternative for new state employees. You work for a state legislator who asks you to research the pros and cons of making the change.
Access the Center for State and Local Government Excellence’s Issue Brief entitled, “A Role for Defined Contribution Plans in the Public Sector,” at http://crr.bc.edu/images/stories/Briefs/slp_16.pdf. The brief describes the differences between defined benefit and defined contribution plans. It also discusses hybrid plan alternatives.
Prepare a memo for the legislator that addresses the following:
a. Briefly define a defined benefit plan and a defined contribution plan. What is a hybrid plan?
b. When considering a change of pension plan, what are the primary considerations mentioned in the Issue Brief ?
c. What type of plan do most states offer? What states have recently changed their state plans?
d. Based upon your review of the Issue Brief, what would be your recommendation to the legislator? Briefly explain the reason for your recommendation.