November 08, 2006
Subliminal Retirement Messages
Posted by Christine Hurt

I have finally completed the last administrative task as a new employee at the University of Illinois -- choosing my retirement plan.  Contrary to the subtle and not-so-subtle messages given to me by the 18-minute retirement video and written materials, I have chosen the "defined contribution" plan, not the "defined benefit" plan.  Although these materials have told me repeatedly that with the definited benefit plan "the State bears the entire investment risk," I have opted for defined contribution, even though (in bold type) I am told that I "bear all the investment risk."  I have also been reminded that under the defined benefit plan, the State "hires and supervises professional investment managers," unlike the defined contribution plan.  Of course, in my plan, I choose between either 10 TIAA-CREF funds or 25 Fidelity funds, so I'm not exactly day-trading my retirement away.  And we know that we can rely on professional investment managers not to invest your retirement funds in say, hedge funds.

I think it's interesting in the post-post-Enron era that employees would be attracted to retirement plans with equal contributions but less employee control.  Defined benefit does not seem that risk-free.  Here, the University of Illinois probably has less credit risk than a normal private employer, but credit risk does not seem to be mentioned anywhere here.

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