Reading news reports these days one could conclude that defined benefit pension plans --- like the Central Pension Fund --- that pay a monthly benefit for life have been bypassed by 401(k) plans in popularity. While that may be the case when it comes to the preference of employers, a recent study shows that defined benefit pensions continue to be extremely popular with employees.

In January of this year Towers Watson, one of the leading benefits consulting firms in the world, published the results of a nationwide survey of employees who participate in defined benefit pension plans. The study found that 59% of those surveyed responded that “my company’s retirement program is an important reason I will stay with my current employer”.

Also contrary to popular opinion, younger workers were even more enthusiastic about retaining their defined benefit plans. The survey found that 63% of those under age 40 cited their employer’s defined benefit pension plan as an important factor in their decision to stay with the company, while 43% cited the pension plan as a key factor in taking the job in the first place.

In a January interview with Institutional Investor magazine, a representative of Towers Watson explained that the popularity of defined benefit plans has probably been heightened by recent economic events saying: “In a very uncertain economic environment there is a real desire for security. People have seen their 401(k) benefits decimated”. He also observed that: “Especially when one gets to the age where they’re raising a family, people value security”.

The results of the Towers Watson survey are consistent with the experience of the Central Pension Fund during these difficult times. Even though in April 2009 the rate of future benefit accrual was reduced from 3% to 1%, to respond to the plummeting investment markets, the average hourly rate of contributions to the Fund increased in both 2009 and 2010. Those contribution increases permitted participants to increase their annual benefits in spite of the reduced rate of accrual, and continue to lock up the only real form of retirement security --- a monthly benefit payable for life. A benefit that is only provided by defined benefit plans.

The preference for defined benefit plans documented in this study confirms the common sense proposition that security is always preferable to insecurity, and a defined monthly benefit for life is always preferable to a lump sum that might --- or might not --- last for life.

It is unfortunate that increasingly, in both the United States and Canada, it is only union members that have this form of retirement security available to them. Needless to say, this form of retirement security will only become more valuable if the new Congress in Washington once again revives the discussion of converting the defined benefit nature of Social Security into 401(k)-style system of private accounts.