This report compares defined benefit (DB) and defined contribution (DC) retirement systems, examining their mechanics, advantages and disadvantages, and budgetary impacts, including unfunded liabilities, employee retention, and labor contract considerations. [1, 2] Defining the Retirement Systems [1, 2] Defined Benefit (DB) Plans: In a DB plan, the employer promises a specific retirement income, typically based on years of service and final salary. The employer bears the investment risk and is responsible for ensuring the plan can meet its obligations. Defined Contribution (DC) Plans: With a DC plan, contributions are made to an employee's individual account, and the retirement income depends on the investment performance of those contributions. The employee bears the investment risk and is responsible for managing their investments. [1, 2] Pros and Cons of Each System [1, 2, 3, 4] Feature Defined Benefit (DB) Defined Contribution (DC) Pros * Guaranteed retirement income * Employer bears investment risk * Can be simpler for employees to understand * May encourage employee loyalty and retention * Employee has control over investments * Potentially higher returns if investments perform well * More portable across employers * Can be less expensive and complex to manage for employers Cons * Unfunded liabilities can burden employers * Investment risk rests with the employer * Can be complex to administer * May is not as portable across employers * Investment risk rests with the employee * Retirement income is not guaranteed * Employees may need to make investment decisions * May not be as attractive to employees Budgetary Impacts [3] Unfunded Liabilities: DB plans can lead to significant unfunded liabilities if the plan's assets are insufficient to cover future obligations. This can create a substantial financial burden for employers. [3] Employee Retention: DB plans can incentivize employees to stay with an employer for longer periods, potentially reducing turnover costs. However, DC plans may offer more flexibility and portability, which could influence employee decisions to move to other companies. [3] Right to Work vs. Labor Contracts: In states with right-to-work laws, employers may have more flexibility in offering DC plans, potentially reducing the bargaining power of unions that historically favored DB plans. In states with strong labor unions, DB plans may remain a key component of collective bargaining agreements. [3] Cost of Administration: DC plans are generally less expensive and complex to administer than DB plans. This can be a significant advantage for employers, especially in the long run. [5] Investment Performance: The investment performance of both DB and DC plans can have a significant impact on their long-term sustainability and the retirement income of employees. [1, 2]