By: Russ Kamp, Managing Director, Ryan ALM, Inc.

The great migration from defined benefit (DB) plans to defined contribution (DC) plans has been underway for roughly four decades within the private sector. How’s it working out for the millions of US workers hoping to retire one day? Will their “golden years” be bright and shiny or tarnished as a result of asking untrained individuals to fund, manage, and then disburse a “retirement” benefit with out the financial resources, skill, or crystal ball to accomplish the objective?

So, how are our DC participants doing? According to Alight’s recently released 2023 Universe Benchmarks report, NOT WELL! Among more than 3 million participants that were surveyed, the median balance of only $23,818 is at its lowest level in more than a decade. Sure, new participants are coming into the survey all the time and they tend to have shorter working histories and smaller balances, but before you believe that this is the primary reason for the meager balances, participants across all timelines suffered significant declines in 2022 as balances fell -14.7% on average.

In addition to reporting on the median account balances, Alight’s survey also pointed out that average participation and contribution rates declined. One in 5 of Alight’s participants had a loan outstanding, but that is down from a peak of nearly 30% about a decade ago. When looking at the average balance, which clearly favors those of higher incomes and longer tenures, 2022 wasn’t much better as the average balance fell $111,210 from $114,280 at the start of the year. For even those with more robust balances, relying on a balance of this size will unfortunately not produce a dignified retirement for the participant.

Let’s hope that the combination of the “Great Resignation” and the generation of pension income in 2022 will slow down the termination of more DB plans within the private sector. We, at Ryan ALM, believe that DB plans are an incredible retention tool. We also know that there are strategies (namely cash flow matching) that can secure the promised benefits at reasonable cost and with prudent risk, reducing the potential for negative shocks to the corporation’s income statement. US workers need our help if they are going to achieve the dream of a dignified retirement. Doing the same old, same old is not the right approach.