TEXPERS Study: Defined Benefit Plans are Cost-Effective for Texas Public Employees

For Immediate Release
Contact Joe Gimenez, 713.478.8034

August 25, 2011

HOUSTON (August 25, 2011) - Defined contribution plans, like 401(k)s, would cost taxpayers substantially more than defined benefit plans for public sector employees, according to a new study by Pension Trustee Advisors, a leading consultancy on public pension systems.

The PTA study, initiated at the request of the Texas Association of Public Employee Retirement Systems (TEXPERS), calculated the costs of achieving a target retirement benefit for employees and expresses this cost as a level percent of payroll over a person’s career in the public sector. The defined benefit plans cost about 40% less than 401(k)-type plans would cost, saving Texas taxpayers.

The PTA study then used data from thousands of employees at pension systems in Austin, Houston, and San Antonio, to calculate the costs of achieving the retirement benefit using both defined benefit and defined contribution administration.

"For workers in the three Texas defined benefit plans studied, our analysis indicates that the cost of a defined benefit plan delivering the same level of retirement income ranges from being 39% to 44% lower than would the cost of a defined contribution plan," said William B. Fornia, president of Pension Trustee Advisors, Inc.. "This study and other cost comparisons between the two types of systems provide proof that defined benefit retirement systems for public employees deliver great value to taxpayers."

The complete study, titled "Analysis of Defined Benefit Plan Efficiency," is available at www.texpers.org/texpers-fact-sheet.asp .

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About Pension Trustee Advisors
PTA was founded by William (Flick) Fornia, FSA, to provide expertise, education, and customized solutions to trustees, pension fund staff, government entities, attorneys, labor and other pension decision makers. PTA provides advisory services on a variety of critical technical issues, including funding policy, benefit design, solvency, actuarial issues, governance, basic investing, expert testimony and other complex pension topics.

The Texas Association of Public Employee Retirement Systems (TEXPERS) is a statewide voluntary nonprofit association that provides education and advocacy services to the Trustees, administrators, professional service providers and employee groups that manage the retirement money of police, firefighters, municipal and district employees in cities across Texas. Today, TEXPERS' member systems represent approximately 300,000 active and retired participants and over $22 billion in assets. Learn more at www.TEXPERS.org or www.TEXPERS.blogspot.com.