Why Pensions May Be Less Expensive for Employers Than 401(k) Plans

Core Insights - The transition from traditional defined benefit pension plans to defined contribution plans like 401(k) may not be as cost-effective for companies as previously believed [1][2][3] Cost Comparison - Traditional pension plans require contributions of 16.5% of total payroll to replace 54% of income for retirees, while defined contribution plans require 32.3% of payroll for the same outcome [3] Economic Implications - Pensions benefit from economies of scale and risk pooling, which can lead to lower costs for employers compared to individual savings accounts [3] - The cost differences between pension and defined contribution plans are significant considerations for employers and policymakers, especially given the low retirement savings levels among typical U.S. households [4]