Stability and security

Retirement programs — whether in the public or private sectors, whether they are single-employer or multiemployer programs, and whether they are defined benefit or defined contribution — are a long-term commitment by a plan sponsor for the benefit of recipients and also the sponsor. Therefore, the programs must be set up to thrive over the course of decades. Having a stable financial picture, including a predictable contribution requirement, as opposed to a varying contribution requirement, is critical for the plan’s ongoing health.

A benefit is secure if the participant can rely on it. Reliability depends on mitigating various risks, including administrative (e.g., there is easy access to accurate data to ensure accurate benefits), operational (e.g., cybersecurity), demographic and investment risks. The core element of a secure retirement benefit is its ability to generate retirement income: “Does the program provide a retirement benefit that the retiree can rely upon?”

For those steeped in retirement planning, there is a common axiom that benefit amounts are the outcome of contributions and investment return. Said otherwise, ensuring the right asset levels in the program is directly correlated to ensuring secure benefits. Therefore, it is critical for the success of all types of retirement plans that stakeholders appreciate the role the plan serves in ensuring secure benefits, ultimately leading to meaningful retirement income. Of course, in different plan arrangements there may be different stakeholders with varying objectives. These stakeholders may include contributing employers, taxpayers, current workforce, retirees, beneficiaries and other interested parties. Let’s consider the perspective of the plan sponsor.

Advantages for plan sponsors

In terms of plan management, stable and sufficient contributions provide:

• Stable contributions ensure a steady inflow of funds into the program helping to meet the future funding needs of the program over the long term, regardless of differing economic environments.
• Knowing how much to contribute regularly helps in financial planning and budgeting, which is vital to the continuing sustainability of the program.

Additionally, there are human capital management advantages to offering a stable and secure retirement program:

• Attraction and retention. A pension plan is a stable retirement program that acts as a powerful tool for attracting and retaining talent. Employees are more likely to commit to a career working for employers that demonstrate genuine concern for their financial future. Union members who participate in multiemployer plans are likely to continue to seek work where they continue to increase their retirement income.
• Minimized turnover costs. Employers that have high turnover incur substantial costs, including recruitment expenses and lost productivity. By offering a pension plan, employers that are interested in reducing their turnover rate can foster loyalty and commitment among their workforces.

Offering a pension plan also has a positive impact on the economy, as discussed in Pensionomics 2025, a report by the National Institute on Retirement Security.

Advantages for plan participants

Participants in retirement plans that have stable contribution requirements and offer a secure benefit gain:

• Long-term financial security. A predictable retirement benefit ensures retirees have a steady income stream, minimizing the risk of running out of funds during retirement. This financial security provides a stable foundation for retirees, allowing them to maintain their standard of living over the long term to cover their living expenses and healthcare needs. It also allows retirees (and pre-retirees) to plan their finances effectively, knowing how much they'll receive each month.
• Protection against market volatility. Plans focused on lifetime income, such as pension plans, shield participants from the adverse effects of market volatility experienced by participants in account balance-focused plans, such as typical 401(k) or other DC plans. This protection ensures that participants of lifetime income-focused plans more easily maintain their standard of living in retirement, regardless of fluctuations in the financial markets.
• Financial peace of mind. Knowing that their retirement savings are in a stable retirement program provides invaluable peace of mind, which may increase productivity. Additionally, it avoids the stress and anxiety about financial stability during retirement years that’s associated with having to turn a DC plan account balance into regular income on their own.
• Confidence. Stable contributions reassure them that the plan is financially sound and can fulfill its promises to provide retirement security. This boosts morale and confidence in the plan sponsor’s commitment to their financial well-being. It also gives them confidence that the need for future retirement plan funding will not adversely affect future direct compensation. (With fluctuating contributions, when contributions increase, there may be less money available for wage increases.) Moreover, knowing the retirement program has a trusted contribution source is one critical step in providing confidence to retire.

A retirement program that lacks either a stable contribution requirement or secure benefits is suboptimal and poses increased risk

Why? Because without a plan for stability and security, undesirable volatility will occur.

Avoiding that kind of uncertainty is attainable with good governance (i.e., a focus on operational, demographic, investment and administrative risks) and purposeful oversight. Plan designs, investment policies and stakeholder buy-in and understanding are all critical elements of this oversight, but stewards of retirement plans must review their situations to determine what other factors could impact their plans’ ability to remain stable and secure.

This strategic planning is the fulcrum on which plan sponsors balance plan stability and security.