Workers need to know that defined-benefit pension plans (DBP) provide them with guaranteed income in retirement, no matter what happens to the economy or the stock market, says John Abraham, deputy director of the AFT research and information services department.
It's something lawmakers need to know, too.

With growing political pressure to replace defined-benefit pension plans with the no-guaranteed-income defined-contribution plans (DCP) or 401(k) types of accounts, labor organizations, including the AFT, are teaming up through the National Public Pension Coalition to educate the public and elected officials about the economic efficiency of defined-benefit plans and the retirement security they provide.

The coalition's core message: Defined-benefit plans are stable and dependable, and defined-contribution plans are risky and costly.

If state and local governments "break the commitment of lifetime guarantees in the form of benefits, they should not be surprised to see a great amount of turnover among their public employees," says Abraham, noting that the public sector wants a committed, stable workforce. "Offering defined-benefit pensions is a key ingredient to that stability" because public employees often exchange higher salaries for reliable retirement benefits.

Other founding members of the National Public Pension Coalition, in addition to the AFT, are the AFL-CIO; the American Federation of State, County and Municipal Employees; Change to Win; the National Education Association; and the Service Employees International Union.

The general rule of thumb is that you need 80 percent of your preretirement income to maintain the same standard of living in retirement. The chart above demonstrates the income replacement rates between defined-benefit plans (DBP) and defined-contribution plans (DCP) at 20, 25 and 30 years of service.