Changing Risks Confronting Pension Participants

The past decade has seen a shift from traditional employer-sponsored defined benefit pensions toward individual account defined contribution plans. This has profound implications for participants’ retirement security, as it involves a reallocation of risks and rewards from the plan sponsor to the employee. While much has been written about the transfer of investment risk and the potential consequences of bad investment choices, less attention has been focused on other potential hazards to retirement security. These include the effect of job changes and other employment factors on contribution patterns, the chance of outliving one’s accumulated assets, and the tension between encouraging participants to save for retirement while allowing access to those assets for a variety of other pressing financial needs. This chapter examines these challenges to participant retirement income security and identifies several legal and policy changes that might enable participants to cope better with such changes.