Editing Pension (section)

===Criticisms===
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Traditional defined benefit plan designs (because of their typically flat accrual rate and the decreasing time for interest discounting as people get closer to retirement age) tend to exhibit a J-shaped accrual pattern of benefits, where the present value of benefits grows quite slowly early in an employee's career and accelerates significantly in mid-career: in other words it costs more to fund the pension for older employees than for younger ones (an "age bias"). Defined benefit pensions tend to be less [[Portability (social security)|portable]] than defined contribution plans, even if the plan allows a lump sum cash benefit at termination. Most plans, however, pay their benefits as an annuity, so retirees do not bear the risk of low investment returns on contributions or of outliving their retirement income. The open-ended nature of these risks to the employer is the reason given by many employers for switching from defined benefit to defined contribution plans over recent years. The risks to the employer can sometimes be mitigated by discretionary elements in the benefit structure, for instance in the rate of increase granted on accrued pensions, both before and after retirement.

The age bias, reduced [[Portability (social security)|portability]] and open ended risk make defined benefit plans better suited to large employers with less mobile workforces, such as the public sector (which has open-ended support from taxpayers). This coupled with a lack of foresight on the employers part means a large proportion of the workforce are kept in the dark over future investment schemes.

Defined benefit plans are sometimes criticized as being paternalistic as they enable employers or plan trustees to make decisions about the type of benefits and family structures and lifestyles of their employees. However they are typically more valuable than defined contribution plans in most circumstances and for most employees (mainly because the employer tends to pay higher contributions than under defined contribution plans), so such criticism is rarely harsh.

The "cost" of a defined benefit plan is not easily calculated, and requires an actuary or actuarial software. However, even with the best of tools, the cost of a defined benefit plan will always be an estimate based on economic and financial assumptions. These assumptions include the average retirement age and lifespan of the employees, the returns to be earned by the pension plan's investments and any additional taxes or levies, such as those required by the Pension Benefit Guaranty Corporation in the U.S. So, for this arrangement, the benefit is relatively secure but the contribution is uncertain even when estimated by a professional. This has serious cost considerations and risks for the employer offering a pension plan.

One of the growing concerns with defined benefit plans is that the level of future obligations will outpace the value of assets held by the plan ([[Unfunded mandate]]). This "underfunding" dilemma can be faced by any type of defined benefit plan, private or public, but it is most acute in governmental and other public plans where political pressures and less rigorous accounting standards can result in excessive commitments to employees and retirees, but inadequate contributions. Many states and municipalities across the United States of America and Canada now face chronic pension crises.<ref name="ReferenceA"/><ref>{{Citation| last1 =Tufts| first1 =William| last2 =Fairbanks| first2 =Lee| title =Pension Ponzi: How Public-sector Unions are Bankrupting Canada's Health Care, Education and Your Retirement| place =Mississauga, Ontario| publisher =Wiley| year =2011| pages =210| url =http://fairpensionsforall.net/book/| isbn =978-1118098738| access-date =28 May 2014| archive-date =28 May 2014| archive-url =https://web.archive.org/web/20140528054920/http://fairpensionsforall.net/book/| url-status =dead}}</ref><ref>{{cite web | url =https://www.nytimes.com/2018/04/14/business/pension-finance-oregon.html | title =A$76,000 Monthly Pension: Why States and Cities Are Short on Cash | last =Walsh | first =Mary | date =14 April 2018 | website =The New York Times | access-date =1 May 2018 | quote =Oregon – like many other states and cities, including New Jersey, Kentucky and Connecticut – is caught in a fiscal squeeze of its own making. Its economy is growing, but the cost of its state-run pension system is growing faster. }}</ref>