On Defined Benefit Pension Plans and the Social Contract

On Defined Benefit Pension Plans and the Social Contract
April 4, 2010
Though modern examples of defined benefit pension plans offer a wealth of evidence contraindicating their effectiveness as long-term retirement solutions, the DB pension structure has many compelling features which recommend it as an excellent retirement option for large swathes of society. Unfortunately, when the troubled DB plans we read about in the news on a daily basis were originally conceived, planners failed to address issues like life extension, health-care inflation, collective negotiations, accounting gimmickry and other complexities which have undermined the original vision of these plans over time. There are some plans, however, whose administrators dealt effectively with these issues at some point in their history, and are now in a well funded position to fulfill their social contract. The Canada Pension Plan, for example, is extremely well run under conservative assumptions, and Canadian residents can feel confident that this plan will deliver against its obligations for many years into the future. The CPP demonstrates that well conceived and conservatively operated DB plans can, in fact, deliver long-term value to retirees.
This discu