A commentary from John Curry: Why the defined contribution option?

From John Curry, January 28, 2008
Subject: Defined Contributions option and.....WHY?

Several years ago, Ohio STRS began offering a defined contributions option for active educators to participate in. I think it is fair to say that almost all of us, who are retired and drawing a defined benefits retirement from STRS, agree that the defined contributions route is like rolling the dice with your future. Some of the current active educators possibly think they can make a fortune by making investment choices themselves or have a relative who will be all-too-helpful for their decision making re. investments. Just the vision of being able to control your own fortune and become a millionaire takes on all the sheen of a sub-prime loan application, doesn't it? Problem is.....there just aren't that many Stephen Mitchells out there to watch over every individual's investment choices, are there?

Also, some active educators tend to take lightly the fact that should they choose the defined contribution route that they will have to forego any STRS group health insurance that comes with the STRS retirement. I guess they just don't realize the premiums that come with trying to obtain healthcare insurance on the open market AND the rejections they will face because of pre-existing conditions, do they? I know, I was young once also, and thought myself as being invincible!

So, excuse my long-windedness, this now brings me to the meat of this letter. In a study released in January 2008 by Center for Retirement Research at Boston College I can glean some interesting statistics..... one of which stands out like a sore thumb! WHY was the choice of a defined contributions retirement introduced to Ohio retirement systems? Before I (or the Boston College study) relate why I think it is best to consider the history of the past decade of majority leadership in both the Ohio House, the Ohio Senate, and the Governor. Seems as though, for at least the past 10 years, Ohio has been dominated by one party, hasn't it? Well, look what page 7 (copied below) has to say is a "statistically significant" reason for the probability of a Defined Contribution plan to be introduced to a state retirement system. If you still are asking yourself "WHY," I suggest you read page 7 and I think it will find the answer your question? A link to the entire study (16 pages) will follow should you wish to read this entire research paper. If, after reading this, you are still "ticked off" at me....all I can say is that I am an equal opportunity offender! You might want to pay particular attention to the highlighted (circled) areas. Gee, wasn't it our Ohio Legislature who allowed the defined contribution concept to set foot in the door of our (and other) state retirement system(s)?

John Curry

Link to this Boston College Study: http://crr.bc.edu/images/stories/Briefs/slp_3.pdf