What's healthier for every citizen, defined benefit (DB) or defined contribution (DC) pensions? DC is green DB is red

Asked by: jakscrow
  • Clearly, it is unfair for people to have their savings wiped out for reasons not connected to them.

    People often work their entire working lives expecting a pension, receiving lower salaries as a result. With a defined contribution plan, market fluctuations can wipe out all their savings. A defined benefit plan guarantees pensions even in a bad market.

    On the other hand, with defined benefit, the state carries the burden of paying pension gaps in a bad market. What this means is that the state has to reduce spending in other critical areas like K12 education. This means that students get a lower quality education for reasons unrelated to them.

    The key question here is: how do we ensure that market fluctuations don't burden anyone who didn't "sign up" for them? The answer is for the government to increase access to "safe" investments that don't lose purchasing power regardless of any market changes. In essence, people should buy a security like TIPS and hold it until maturity.

    Some argue that TIPS has "interest-rate risk". This is only true if you are buying TIPS to sell it before maturity. Others argue that TIPS will yield lower interest rates than the market if inflation is low. True, but if you want to gamble your money in the market it is your fault if your savings get wiped out.

  • DC is green.

    Defined contribution (DC) pensions are based on personal responsibility vs defined benefit (DB) pensions are run by states/govts. If you answered DB pensions then I'd recommend watching both the 'pension obligations' lesson and 'Illinois pension obligations' lesson then re-evaluate your opinion.

    Personal responsibility pensions, DC, should be the only plans allowed if our state/federal economies plan to remain solvent without do anything that sickens the economy like raising taxes.

  • Hopefully in right category :)

    Defined benefit provides guaranteed stipend that was paid in by the user for the rest of their life and at a set rate, or tied to inflation. DB does not just cover public pensions, but also traditional private pensions. In fact, DB was once more common than DC. Unlike DC, DB is not dependent on the stock market. My parents lost much of their retirement due to DC. With DB (public or private), it would not have made much of a difference. At the very most, the company and union would negotiate the stipend, or if the company went bankrupt, a third-party company would carry out the stipends of the company.

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