The real subliminal message here is that Christine is not fully committed to her school! Defined contribution plans can be taken elsewhere; defined benefit plans just get wasted if an employee moves. Another nice way to tell whether someone is committed to his employer is to ask whether he deferred any portion of compensation.

They aren't really committed to me, either! The employer match doesn't vest for five years. They can fire me (or not give me tenure) and get their "virtual" money back as well!

Having now rolled over four retirement plans, I think I would have to be "committed" to a mental institution if I signed up for defined benefits!

The usual reason not to vest employer’s match is to induce employees to stay, not to test them out. So, the way to see if they are committed to you more than you are committed to them is to create an escrow account and put into it (a) your entire retirement contribution and (b) the employer’s match. If they fire you, you keep all of the escrow money. If you walk away, they keep all of the escrow money. If you say no to this arrangement, you are not committed. If they say no, they are not committed. Damn, I am so diabolical.

The reason Illinois is saying all of that to Christine is that the empirical data bears out, as I recall, that employees do a far worse job investing their defined contributions than companies do within the defined benefit plan. For example, employees have this really bad habits of buying high and selling low (momentum buying and panic selling). Knowing Christine, she is going to be the exception, but I understand where Illinois is coming from.

I am stealing Kate's line here ... but Jeff, do you have citation information re: empirical studies demonstrating that employees earn lower rates of return with their investments? And specifically, because of momentum buying and panic selling? I'm interested in reading these studies.

Josh -- I don't know if he's cited any empirical work, but I know that Christine's colleague Richard Kaplan has written about the tendency to overinvest in employer stock (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=519642), which is generally a terrible idea from a diversification standpoint, as one's human capital and investment capital end up in the same place. Even setting aside the human capital point, a large investment in a single stock is rarely a good idea, and yet employees routinely make the choice. Obviously, if one has private information, the investment in employer stock could conceivably be a good bet notwithstanding the risk. But I don't think that situation arises very often for non-executives. My understanding is that, from a pension policy perspective, the lack of diversification is the big problem, not momentum buying and panic selling.

I think Jeff Gordon has written about the relative investment returns of DB vs DC plans. So he might have some cites too.

I am tapping into my recollection of what we were concerned about from the management side of things. I can go back to my former colleagues, but my guess is that Wyatt or Towers Perrin has collected this data.

Isn't the salient point here that Christine has many choices, as her post describes, regarding retirement investments? What a wonderful development, as compared to what employees had to look forward to 30 or 40 years ago.

Or maybe the salient point is that a public employee now/still has many choices. The decline of private defined benefit plans means that many private employees have "many choices," but nowadays those choices don't include a defined benefit plan.