Press Release
Congress Advised to "Level the Playing Field" Between DB and 401k's
WASHINGTON — Ronald Gebhardtsbauer, senior pension fellow for the American Academy of
Actuaries, testified before the House Ways and Means Oversight Subcommittee today on the tremendous
growth in the number of workers in 401k pension plans versus employer-provided defined-benefit (DB)
plans and other defined-contribution (DC) plans.
"In fact, the 'battle' has never been between defined benefit and defined contribution plans,"
Gebhardtsbauer said. "It has been between 401k arrangements and all other plans. And 401k's are
winning."
Gebhardtsbauer noted that data from the Department of Labor find that: 1) the percentage of people in the
labor force who participate in DB plans has decreased from 40 percent in 1975 to 21 percent in 1998;
2) the percentage of people in DC pension plans has increased from 16 percent in 1975 to 46 percent in
1998. Of those in DC plans, more than three-quarters are in 401k arrangements.
According to Gebhardtsbauer, one reason for the rise in 401k plans is because younger, mobile
employees want to manage their retirement funds. Another reason is that the regulation of DB plans is
"onerous," and considered by many as "draconian." A 1993 study by the Academy showed that increased
government regulation was the major factor in 44 percent of the DB plan terminations in the 1980s. He
also cited a study that showed that as a result of regulation, the administrative costs of a DB plan have
risen dramatically. In 1980, the cost of running a DB plan were less than a similar DC plan; by 1996, DB
costs were almost 50 percent more than a comparable DC plan.
Gebhardtsbauer said "We need to level the playing field, so that employers can choose the type of
plan that works best for them and their employees." He explained that DB plans have many
advantages for employees and employers, such as retirement security and low investment risk for
employees, and contribution, investment and design flexibility for employers. He offered a series of
actions Congress should consider to make DB plans more attractive, including the creation of "DB401k"
plans, which would have many of the advantages employees like in 401k plans, such as pre-tax
employee contributions and matches, but it would pay a guaranteed lifetime benefit. "Cash does not
equal retirement security -- a stable lifetime income does," he stressed.
For a complete copy of Gebhardtsbauer's testimony, go to www.actuary.org/pdf/pension/testimony_20june02.pdf.
