Actuarial Notes

The Hybrid Handbook: Not All Hybrids Are Created Equal

By Dan Doonan and Elizabeth Wiley · National Institute on Retirement Security · 2021

Study guide: Exam RET-101

A May 2021 report on hybrid retirement plans for state and local government employees. It treats a hybrid as an umbrella term for a wide range of designs, some defined benefit pensions with risk-sharing provisions and others blending defined benefit and defined contribution features, each trading off retirement benefits, risks and costs. It gives officials an overview of hybrid plan design, finds that some shifts to hybrids were made without evaluating their long-term implications, and concludes that not all hybrid plans are created equal.

On the syllabus

  • Exam RET-101 — RET101-104-25; Outcomes 1a, 1b; 3a, 3b, 3c; 4a-4n. The SOA course strategy guide notes that much of the reading is in the context of U.S. public plans but gives an overview of almost the full range of plans that might be called hybrid.

I Executive Summary

II Introduction

  • Hybrid Overview
  • Evaluation Framework
  • Assessing Key Goals of Various Types of Plans
  • Retirement Plan Benefit Structures
  • Policy Objectives and Transition Costs: New Plans versus New Tiers

III Defined Benefit vs. Defined Contribution Plans

  • Key Takeaways
  • Economic Efficiency: Pensions vs DC
  • Observations on Accrual Patterns: Traditional DB vs DC

IV Cash Balance Plans

  • Key Takeaways
  • Cash Balance Examples
  • Key Considerations on Cash Balance Plans

V Combination DB and DC Arrangements: Vertical and Horizontal Hybrids and Plan Choice

  • Key Takeaways
  • Vertical Hybrids
  • Vertical Hybrid Example
  • Horizontal Hybrids
  • Horizontal Hybrid Examples
  • Choice Schemes
  • Key Considerations of DB/DC Combination Plans

VI Risk-Sharing Defined Benefit Plans

  • Key Takeaways
  • Key Considerations for Risk-Sharing Plans

VII Defined Benefit Plans Can Offer Attractive Provisions for Non-Career Employees

VIII Conclusion

Endnotes

Sources