The city of New York helps out taxpayers and retired public employees by sticking with a traditional defined-benefit pension plan rather than a 401(k) model, according to a new report issued by the National Institute on Retirement Security (NIRS). According to the NIRS release describing the report, ”A Better Bang for New York City’s Buck,” which was commissioned by New York City Comptroller John C. Liu:

New York City’s defined-benefit pension plans can deliver the same retirement income at a nearly 40 percent lower cost than a defined contribution 401(k)-type individual account.

The report builds on research gathered by NIRS for a national study, “Decisions, Decisions: Retirement Plan Choices for Public Employees and Employers,” issued in September. In a press statement, NIRS Executive Director Diane Oakley explained:

These findings are consistent with our national study on the cost efficiencies embedded in pension plans. The analysis clearly indicates that the qualities inherent in DB [defined-benefit] plans—particularly the superior investment returns and pooling of risks and assets—fuel their fiscal efficiency. The report provides important insight for policymakers, employers and employees, who are struggling to ensure adequate retirement income with the fewest dollars possible.

Because pension funds invest large amounts of money in markets, it becomes easy for naysayers to persuade people that defined-pension benefits are somehow more costly and riskier than the individual-based 401(k) model. But NIRS found that just the opposite is true, especially because the pooling of resources for a diverse group of retirees allows for the risk-sharing. As Liu put it:

Calls to replace pension plans with 401(k) plans understandably increase when markets have returned poorly over sustained periods. However, as this and other studies show, the defined pension is the most cost efficient vehicle to deliver retirement income security.