The National Institute on Retirement Security has challenged the validity of a study released by the Manhattan Institute, calling it “so fundamentally flawed that it is irrelevant.”
According to NIRS, the Manhattan Institute study, “Defined Contribution Plans are Cost-Effective,” authored by Josh McGee, a senior fellow at the Institute, erred in the data it used to arrive at its conclusions.
In evaluating public sector pension plans, NIRS said, the study relied on private sector pension data, rather than public sector data, to do so—and this invalidated its findings. “Also troubling is that the study’s title is not supported by any numbers in the report to demonstrate the cost-efficiency of a defined contribution plan,” said Diane Oakley, NIRS executive director, in a statement.
In addition, said NIRS, the new study “inaccurately” criticizes one of its own, “Still a Better Bang for the Buck: Update on the Economic Efficiencies of Pension Plans,” which NIRS says “remains ... credible and accurate”; was “conducted by a respected pension actuary with both public and private sector experience”; is “based on empirical research on investment behaviors of individuals” and “was carefully reviewed by a committee of experts.”
Among the challenges NIRS makes to the Manhattan Institute study are these:
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Claims that defined benefit plans are not structurally more cost-effective than DC plans are not borne out, according to NIRS, because “data and empirical evidence” indicate that a DB plan can provide “a target retirement benefit at half the cost of a DC account.”
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Claims that the investment returns in DC plans are similar to those in DB plans are not supported by the data. NIRS said that the Manhattan Institute study did not use public pension data and also did not consider asset allocation shifts in private-sector pensions due to “frozen” pensions.
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Stating that DC plans can offer annuities, without taking into account either the few DC plans that do so or the higher costs presented by DC plan annuities—or the need to buy the annuities “from the DB plan.”
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