DC Plans: International Experience and the Need to Address
Retirement Security

Abstract

Despite having participants with similar retirement-outcome goals, the three countries with the greatest reliance on defined-contribution (DC) plans—Australia, the United States, and the United Kingdom—have adopted dramatically different approaches to plan design and investment management. Typical glide paths in these countries, though, tend to have one thing in common: They may leave investors exposed to excessive risk. The authors contrast the key features of DC plans in these countries and call for a more thorough analysis of the risk of loss, as well as the sources of risk, in investment defaults. Glide-path design should focus on desired outcomes, respect risk-capacity limits, and incorporate risk diversification, inflation hedging, and market-shock protection strategies.