Defined benefit retirement plans are not just important to the welfare of retirees, but also represent a critical sector of the economy, panelists at a recent hearing before the U.S. Joint Economic Committee told lawmakers.
DB pension plan funds provide a vital source of funding for venture capital firms, which are a key engine of growth for the U.S. economy, said Sherrill Neff, a partner with the Philadelphia venture capital firm Quaker BioVentures.
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Nearly one out of 10 private-sector jobs is at a company that was originally supported by venture capital, and these organizations, including Google, Cisco and Yahoo, represent almost 18% of the U.S. gross domestic product, Neff said.
The advantages of DB plans have been well-documented. In a recent study, DB plans outperformed defined contribution plans by 1.8% over an eight year period, said Sen. Robert Casey (D-Pa.), who convened the hearing.
DB plans earn better returns because they are managed professionally and have access to more diverse alternative assets, including venture capital investments, Casey added.
There are several additional perks to DB plans when compared to DC plans. DB plans have lower asset management costs, offer greater portability and leave public-sector plans in a better position to offer annuities because assets are more secure, said economist Christian Weller, senior fellow at the Center for American Progress Action Fund.
Weller also testified to the structural advantages of DB plans. "Many design features of DB plans are rarely applied to DC plans—automatic savings, universal coverage and safer, lower-cost investment options are among them," he explained.
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