As pension plans evolve, workers bear a growing share of the risk

Core Insights - Traditional defined benefit pensions are declining, with employers shifting the responsibility of saving and investing onto employees [1] - An increasing number of public-sector pension plans are adopting risk-sharing designs, with approximately half of state and local government workers covered by such plans [2] Summary by Sections - Evolution of Pension Plans - Risk-sharing features in pension plans gained traction after funding declines post-financial crisis, with a notable increase from 34 plans in 2007 to 80 plans by 2014 [3] - As of 2025, 108 state and local pension plans incorporate risk-sharing, covering about 55% of active members, although this may overstate the actual impact on workers [4] - Methods of Risk Sharing - A plurality of plans utilize COLA-based risk sharing, adjusting cost-of-living increases based on pension performance and funded ratio [5] - Some plans only provide COLAs from "excess return" accounts, while others link increases directly to the funded ratio or recent investment returns [6] - Variable employee contributions are another common method, allowing worker contributions to fluctuate based on funding needs, which can affect take-home pay [7] - A hybrid approach is also prevalent, combining a smaller traditional pension with defined contribution or cash balance plans to limit employer exposure to risks [8]