Laws governing state pension funds shouldn't be changed to allow defined contribution plans to replace defined benefit plans because 401(k) plans are "woefully inadequate for those who rely on them for their primary retirement income," said Thomas DiNapoli, the New York state comptroller and sole trustee of the $133.8 billion New York State Common Retirement Fund.
"The reality is that 401(k)s were never intended to take the place of pensions," DiNapoli said in a speech Dec. 12 at the New School's Schwartz Center for Economic Policy Analysis in New York City.
In a wide-ranging discussion of the New York state public pension system, DiNapoli noted that the state Legislature continues to explore areas of reform "like the level of pension contributions and controlling overtime abuse."
However, DiNapoli drew the line at 401(k) plans, which he said would represent "a more extreme change" to the pension system. "From my point of view, this is unacceptable."
"The financial crisis of 2008-2009 dramatically demonstrated how a collapse in equity prices can decimate 401(k) retirement savings," he added. "According to Boston College's Center for Retirement Research, 401(k) plans lost a collective $1 trillion during the Great Recession."
DiNapoli also said the "recent market volatility is yet another reminder of the inherent instability of 401(k)s and how daunting it can be for individuals with 401(k)s to navigate their way to a secure retirement."
He said state DB plans offer advantages over 401(k) plans, including lower fees for investment options. In addition, 401(k) plan participants "must save at a rate that ensures that their funds will last well into their 90s," he said. "In contrast, large institutional plans like ours have assets based on the average mortality of its members."