Plan Design

Plan design refers to the framework of a retirement plan, defined by such characteristics as participation requirements (mandatory or optional); required contributions by the employer and employees; vesting requirements; benefit levels; methods of benefit distribution; and others.

There are two main types of retirement plans: defined benefit (DB) and defined contribution (DC). Among employees of state and local government, the vast majority participate in a DB plan. Some retirement plans, often referred to as hybrid plans, combine features of DB and DC plans.

Defined Benefit 

A defined benefit plan is an employer-sponsored retirement benefit that provides workers, upon attainment of designated age and service thresholds, with a monthly benefit based on the employee's salary and length of service. The value of a DB plan benefit is not affected by the return on the assets that are invested to fund the benefit, although some DB plans in the public sector link post-retirement cost-of-living adjustments to investment performance. DB plans, also known as pension plans, are the central organizing element of the public retirement system community.

According to the U.S. Bureau of Labor Statistics, approximately 85 percent of employees of state and local government participate in a DB plan (this also includes those who participate in hybrid retirement plans); substantially all of the remainder participate in a defined contribution plan. More ...

Defined Contribution 

A defined contribution plan is an employer-sponsored retirement benefit in which the employer provides a retirement savings vehicle for its employees, and also typically makes a contribution to the employee's retirement account. The 401(k) plan is the most popular form of defined contribution plan, although states and local governments may also  sponsor other types of DC plans, such as 401(a), 403(b), and 457 plans.

On a statewide basis for broad employee groups (i.e., not including legislators, judges, etc.), three states and the District of Columbia provide only a defined contribution plan to their workers: all newly hired employees in Alaska since July 2006, new state employees in Michigan since March 1997 and Oklahoma since July 2015, and general employees (not teachers or public safety workers) in the District of Columbia have only a DC plan as their primary retirement benefit. More ...

Hybrid

As their name implies, hybrid plans combine features of both defined benefit and defined contribution retirement plans. Hybrid plans fall into one of two broad categories.  One is a cash balance plan, which marries elements of traditional pensions with individual accounts into a single plan. The other type of hybrid is combines a traditional DB plan with a defined contribution plan. More ...