The pension crisis is opening the eyes of employers and employees to new approaches to the age-old problem of creating a present-day solution to underwriting the future cost of a secure retirement.
Many employers view traditional defined benefit plans as “volatile risks.” That view, which began to develop as long as twenty-five years ago, has driven the steady migration to defined contribution plans and their more predictable cost structure.
Yet from a broader perspective, a stable income is the widely considered key to a secure retirement and economy. With traditional pensions that provide that stable income continuing to disappear and defined contribution plans failing to assure that stability, a third way had to emerge: The adjustable pension plan (APP, also sometimes called the Variable DB Plan).
Developed by the United Food and Commercial Workers, legal experts Slevin & Hart, Gallagher Financial Advisors and the actuaries at Cheiron, the APP represents a prudent, evolutionary approach to creating benefit security for retirees, financial stability for plan sponsors and long-term visibility for both.
The APP, because of its variability, versatility, and more conservative approach, is more likely to be fully funded than a traditional pension. It accomplishes this in three ways:
The APP has shown itself to be more stable than even a defined contribution plan. Defined contribution plans can suffer from low participation rates and high administrative costs-as high as those of legacy defined benefit plans.
That’s why the APP has earned advocates who see value in its ability to create stability in an unstable time. These advocates recognize the need to evolve defined benefit pensions to reflect the realities of a less predictable economy and a growing imbalance between the number of retirees and current employees. The consequences of that imbalance are borne directly by employers and indirectly by current employees.
Learn more about how the APP / Variable DB plan addresses these problems, and what others are saying about it.