Defined Contribution

One type of retirement plan that governments offer is a defined contribution (DC) plan. Under a DC plan, individual accounts are maintained for each participant. Employee and employer contributions are made into the accounts, where investments gains and losses are recorded. Benefits paid at retirement are based on contributions and investment earnings.

Characteristics of DC plans include:

  • Employer liability is fulfilled annually as contributions are made to employee accounts.
  • Investment risk is assumed by the employee.
  • Annual contributions are more predictable as they are typically based on a percentage of employees’ payroll.
  • Benefits may be withdrawn under certain circumstances provided under IRS guidelines.

 

 Best Practices & Advisories

Governments have begun to transition away from defined benefit plans to other plan types, such as defined contribution plans. GFOA identified the following best practices and advisories related to defined contribution plans:

Plan Design

Investment

  • Asset Allocation for Defined Contribution Plans– GFOA recommends that public employers as plan sponsors work actively with the plan administrators to provide investment options and education to help employees who participate in defined contribution plans attain their income replacement goals in retirement.
  • Brokerage Window Options for Defined Contribution Retirement Plans– GFOA recommends that state and local governments exercise extreme caution when considering whether to offer a brokerage window option in conjunction with a defined contribution retirement plan.

 

Resources

 Government Finance Review  GFOA Research  Recent Presentations

 

Additional GFOA Resources

Training

GFOA Conference

GFOA Research

 

Best Practices

 

Other Links and Resources

Other Links

 

  • Public Plans Data
  • National Association of State Retirement Administrators
  • National Conference on Public Employee Retirement Systems
  • National Insitute on Retirement Security
  • American Institute of CPAs
  • Center for State and Local Government Excellence
 
Case Studies

 

  • Adopting Automatic Enrollment in the Public Sector: A Case Study
  • Colorado PERA Pursues World-Class Programs
  • Incremental Changes Can Yield Big Savings Over Time