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While noting the benefits of DC plans, the report by Governor Scott Walker administration appointees and the Department of Employee Trust Funds says actuarial analysis indicates that to provide a benefit equal to the current Wisconsin Retirement System (WRS) plan, an optional DC plan would require higher contributions than employers and employees currently pay. In addition, the report notes that studies conducted by other public retirement plans also show higher administrative costs to manage a DC plan than a DB plan (see “Report for New Hampshire System Finds Switch to 401(k) May be Costly”). The report authors found that numerous studies have shown that as the number of participants in an optional DC plan increases, more contributions are diverted from the DB plan and the greater the effect on the ability to invest, because of reduced economies of scale as well as restricting investment in certain asset classes. They also noted that in order to have benefits equal to what the WRS now provides, participants electing a DC option would need to purchase additional protection for death or disability prior to retirement. The existing WRS plan provides for death and disability benefits. The report points out that the WRS is stable and highly-funded, with a funding ratio more than 90% in the last 20 years, and the system is of low cost and risk to taxpayers.
While noting the benefits of DC plans, the report by Governor Scott Walker administration appointees and the Department of Employee Trust Funds says actuarial analysis indicates that to provide a benefit equal to the current Wisconsin Retirement System (WRS) plan, an optional DC plan would require higher contributions than employers and employees currently pay. In addition, the report notes that studies conducted by other public retirement plans also show higher administrative costs to manage a DC plan than a DB plan (see “Report for New Hampshire System Finds Switch to 401(k) May be Costly”).
The report authors found that numerous studies have shown that as the number of participants in an optional DC plan increases, more contributions are diverted from the DB plan and the greater the effect on the ability to invest, because of reduced economies of scale as well as restricting investment in certain asset classes.
They also noted that in order to have benefits equal to what the WRS now provides, participants electing a DC option would need to purchase additional protection for death or disability prior to retirement. The existing WRS plan provides for death and disability benefits.