Exploring the history, structure, and benefits of retirement plan types, and what drives Baby Boomers, Gen X, Millennials, and Gen Z to prefer one over the other
Today’s workforce spans multiple generations, each with different expectations for retirement planning. Many Baby Boomers were covered by traditional defined benefit plans, which provide predictable and guaranteed retirement benefits. On the other hand, younger generations like Millennials are more likely to be covered by defined contribution plans, which do not provide a guaranteed and predictable retirement benefit but do give the employee greater control over investments as well as portability. It is important for an employer or its advisor to understand the differences between defined benefit and defined contribution plans in order to design a benefits package that is attractive to the employer’s multi-generational workforce.
Defined Benefit vs. Defined Contribution Plans: A Quick Overview
Defined Benefit (DB) Plans promise employees a specific monthly benefit at retirement, often based on a formula that takes salary history and years of service into consideration. These traditional pensions are funded entirely by employers and offer financial predictability for retirees. However, they come with higher funding obligations and administrative costs for employers.
Defined Contribution (DC) Plans, such as 401(k)s, shift the responsibility for retirement savings to the employee. Contributions are usually a mix of employee deferrals and employer matches, with investment performance determining an employee’s final retirement benefit. While these plans offer flexibility and portability, they also place market risk on the individual.
A Brief History of Retirement Plans
Until the 1980s, defined benefit plans dominated the retirement landscape. Employers took on the responsibility of providing lifetime income to retirees. However, with rising costs, increased employee mobility, and regulatory changes, defined contribution plans became more attractive to employers. The passage of the Revenue Act of 1978, which added section 401(k) to the Internal Revenue Code, marked a turning point in retirement plan design.
Today, only about 15% of private sector workers participate in defined benefit plans, compared to nearly 50% in defined contribution plans.
Generational Preferences: What’s Driving the Divide?
Baby Boomers (born 1946–1964): Many Baby Boomers spent the majority of their careers participating in traditional DB plans, which offered stable and guaranteed retirement income. For those with access to such plans, they continue to serve as a foundational component of retirement security. However, as DB plans have gradually disappeared from the private sector, particularly in recent decades, late-career Boomers are increasingly dependent on DC plans, such as 401(k)s, to meet their retirement goals. This shift reflects changes in plan availability.
Generation X (born 1965–1980): This transitional generation saw the decline of pensions and the rise of the 401(k). Many Gen Xers are balancing the two systems, with some early-career access to DB plans but a heavier reliance on DC plans now. They tend to value portability and control, key benefits of DC plans, but also express anxiety over market volatility and retirement adequacy.
Millennials (born 1981–1996): Coming of age during economic uncertainty, Millennials are wary of traditional institutions but are avid savers when given access. With little to no access to pensions, they lean heavily on defined contribution plans, particularly 401(k)s and Roth options. Technology and financial literacy tools have empowered them to engage more actively in their retirement planning.
Generation Z (born 1997–2012): Just entering the workforce, Gen Z is already rethinking retirement. They seek flexibility, digital tools, and environmental/socially responsible investment options. While most will never see a defined benefit plan, they may demand innovations within DC plans, like guaranteed income features or ESG investment options.
Benefits and Trade-Offs
The Future of Retirement Planning
While defined contribution plans continue to dominate, the lines are beginning to blur. Hybrid approaches like cash balance plans (a type of DB plan with features of a DC plan) are gaining traction, especially among business owners and professionals. Meanwhile, DC plans are evolving to include lifetime income options and financial wellness tools to meet the expectations of younger generations.
At RMC Group, we specialize in helping businesses and individuals design retirement plans that align with their goals—whether that’s stability, flexibility, or a combination of both. If you’re exploring your retirement options or want to learn more about how these trends may impact your plan design, contact us today to schedule a consultation with one of our retirement planning professionals.
Ultimately, the shift isn’t just about finances, it’s about trust, control, and values. Boomers trusted their employers to manage retirement; Gen Z may prefer to do it themselves, but with better tools and support.
As retirement planning continues to evolve, understanding generational preferences can help employers, advisors, and policymakers tailor strategies that support long-term financial wellness for all. Whether it's a guaranteed pension or a self-managed investment account, the goal remains the same: a secure and dignified retirement.
