A recent examination conducted by the Urban Institute has revealed that the defined benefit retirement programs have gained popularity when compared to the private sector plans. The investments made by federal employees in the federal retirement benefits have also increased.
Defined Federal Retirement Benefits Are Leading the Way
The examination done by the Urban Institute also exposed the fact that defined benefits have gained a lot of popularity in the federal government. The current economic crisis is also assumed to be forcing the federal employees to invest more money in the defined contribution programs. The amount of money invested is more on average. The study focused on all the trends that are happening in the private sector.
It also studied the defined benefit programs that pay lifetime annuities not unlike the CSRS and FERS. It was noted that the number of people who invest in such plans have been falling steadily in last 25 years. The percentages of employees who invest in these plans have come to a total of just 19 percent as compared to the 42 percent it was 25 years back. The participation of private sector employees in the defined contribution programs like the 401(k) plans has also fallen from 51 percent to 40 percent.
Comparison between Defined Benefits and Defined Contribution Plans
The report also compared the key features of the defined contribution plans and the defined benefits plans. It stated that the defined benefit pension plan, the employers have the responsibility of ensuring that the employees who have worked for them receive pension benefits. On the contrary, in the defined contribution plans, most of the responsibilities lie with the employee only.
In the defined contribution plans, the employees have to make decisions like whether to participate in the plan or not, how much to invest and in what options, whether to opt for a lump sum payment at the time of retirement or to take retirement benefits as an annuity, etc.
Making these decisions is not an easy feat as the employees have to be constantly aware of the trends of the industry and they have to be responsible for their financial security. The employees also have to make several crucial decisions at every step.
TSP is More Popular than the DC
The report also stated that the people still consider TSP to be a better option for retirement benefits as compared to the direct contribution plans. The report also mentioned that the direct contribution plans can provide the retirees with considerable retirement wealth.
Related Pages and Articles
Understanding the Federal Employees Retirement System
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