Can DC and DB Plans Offer Actuarial Fairness? Absolutely! Benefits Quarterly (09/01/02) Vol. 18, No. 3 p.42; Mettler, Gary S.
According to the federal government, the number of defined benefit plans has declined significantly as the number of defined contribution plans has increased, causing many retirees to have less money for retirement than expected. Financial planning and education are essential if retirees are going to plan for their future health needs and security, and some employers are beginning to offer classes about how to manage finances and retirement benefits. Defined contributions plans, according to Benefits Quarterly's Gary Mettler, should never have replaced defined benefit plans as a part of retirement because contribution plans were meant to supplement retirement allocations. However, retirees have income replacement options that can close the gap between their retirement savings and their cost of living. These include the actuarially fair immediate annuity, which uses a "rated age" to determine the probabilities of the retiree's survival based on present health conditions, and the reversionary annuity, which underwrites the benefit for both the annuitant and the beneficiary, translating into higher premium savings. Both of these annuities can be offered by employers through insurance carriers or plan administrators as a supplement or part of a defined contribution or defined benefit plan. Though annuities cannot be liquidated, retirees can expect a steady source of income, and many offer features that protect against inflation and ensure that survivors receive the remaining funds.