Defined Contribution Plans with Rate-of-Return Guarantees

A notable development in retirement income security over the past 20 years is the growing share of defined contribution (DC) plans among retirement systems throughout the world. Because participants' benefits in these plans are directly related to investment returns, concern about the risk borne by workers in DC plans has grown. One of the strategies suggested to address this issue is to adopt some type of rate-of-return guarantee feature in the retirement plan design. This article examines the operation of rate-of-return guarantees in both mandatory and voluntary DC plans throughout the world. The range of guarantee features surveyed suggests a wide variety of conditions and motivating factors at work in the United States and in other countries. The article's conclusions link the discussion to the current debate in Congress over limiting investment flexibility in American workers' 401(k) accounts