The Expanding Role of Defined Contribution Plans in the USA: Benefits, Restrictions, and Risks
Posted: 4 Aug 2005
In the United States, retirement savings are trending toward defined contribution plans rather than defined benefit plans. The reasons are many, but dissatisfaction with defined benefit plans and questions regarding the sustainability of Social Security point to increased interest in 401(k), 403(b), 457 plans as well as Roth accounts. Current legislation has reduced the regulatory differences associated with each plan, and the risk associated with each depends not only on the parameters established by the plan sponsors, but also on the future tax rates which plan participants expect to pay when they withdraw funds from the plans. To maximize return and minimize risk, retirement savings should be viewed in a total portfolio context. As such, it may be appropriate to combine different plan options.
Keywords: Retirement, Asset, Allocation, Savings, Taxes, Pensions
JEL Classification: G11, G20, G29
Suggested Citation: Suggested Citation