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A better pension

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Tuesday, Nov. 13, 2012, 8:59 p.m.

Replacement of traditional defined-benefit pensions — which aren't as good for workers as often thought — by 401(k)-style defined-contribution plans makes sense because of how Americans work today.

Dallas Salisbury, president and CEO of Employee Benefits Research Institute, tells The Washington Post that defined-benefit plans always have been best for highly paid employees and those who stay with one employer for most of their careers.

But Americans now change jobs more frequently. Median job tenure for men older than 55 peaked in 1983 at 15.3 years and now is less than 11 years. For women, it's now 10 years.

In 1975, The Investment Company Institute, a mutual fund industry group, reported that 90 percent of private-sector workers had defined-benefit plans but only one in five ever received income from those plans. And the inflation-adjusted median annual payout was just $4,700.

Since 1975, federal regulations have boosted defined-benefit payouts — and caused employers to drop such plans. But growth in 401(k)-style plans has helped those getting income rise from 21 percent to 31 percent of private-sector retirees and increased their median benefit by nearly a third.

Defined-benefit plans simply aren't sustainable these days and defined-contribution plans, over time, offer better retirement prospects. It's a lesson the private sector is taking to heart — and one the public sector must learn, for taxpayers' sake.

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