As we have mentioned in passing several times—and as pretty much everyone knows—DB plans are disappearing. If they were such an ideal solution to the participant’s retirement income needs, why did that happen? Three reasons. First, several elements of DB design did not work nearly as ideally as advertised. Second, the regulatory burdens imposed by ERISA increased the cost of providing retirement benefits, decreasing (at least marginally) the value of the DB “value proposition.” Finally, what really drove a stake through the heart of corporate DB plans was the secular decline in interest rates.
In this chapter we will review the “flaws” sponsors and participants found in the DB design.