State Hybrid Retirement Plans

by and

Although hybrid plans have been in place in public sector retirement systems for decades, this plan design has received increased attention in recent years. This new focus occurs as states find that closing their traditional pension plan to future (and, in some cases, existing) employees could increase—rather than reduce—costs, and that providing only a 401(k)-type plan does not meet important retirement security, human resource, or fiscal objectives. While most states have chosen to retain their defined benefit (DB) plan by modifying required employer and employee contributions, restructuring benefits, or both, some also have looked to so-called “hybrid” plans that combine elements of traditional pensions and individual account plans.

Although a hybrid retirement plan may take one of many forms, this brief examines two broad types in use in the public sector. The first is a cash balance plan, which marries elements of traditional pensions with individual accounts into a single plan (see Table 1). The second type combines a smaller traditional DB plan with an individual defined contribution (DC) retirement savings account, referred to in this brief as a “DB+DC plan” (see Table 2). Despite variability among these plans, most contain the core features known to promote retirement security: mandatory participation, shared financing between employers and employees, pooled assets invested by professionals, a benefit that cannot be outlived, and survivor and disability protections.

Would you like to take a short survey about the Public Plans Data website?

Yes, take me to it.       No, thanks.      Not now, but ask me later.

Step 1 of 2