Traditional pension funds are going by the wayside. The headaches derived from accounting for these plans is just one of many reasons that this is so. Some have pointed out that there is a lack of comparability between actuarial models, and my general feeling is that a significant part of the problem with pension accounting is that no reasonable person can expect financial forecasting that must look decades into the future to be any more accurate than a weather forecast that does the same. Leaving retirement funds in the hands of employers via defined benefit plans also leads to the temptation to raid the pension fund for support in lean times, or merely to raise cheap capital. Raids started in earnest late in the last century, carrying into the 21st century; creative methods included the following, according to Business Week's Robert Kuttner:

• Project an unrealistically high rate of return and claim that the plan is overfunded.
• Convert from conventional plans to "cash-balance plans."
• Redefine employees as independent contractors.
• Sell off units that have older employees, who then lose their pension benefits.
• Declare bankruptcy, but set up a special bankrupcty-proof pension plan for top executives as an off-the-books trust.

The complexity of accounting for defined benefit plans, combined with the dawning realization that putting all of one's eggs in one basket was foolhardy, let to the increased popularity of defined contribution plans from the 1980s onward; the use of DC plans nearly doubled in just over ten years when 401(K) plans became available.

Sources

Employee Benefit Research Institute. (2002). An evolving pension system: Trends in defined benefit and defined contribution plans. Executive summary retrieved January 24, 2009, from: http://www.ebri.org/publications/ib/index.cfm?fa=ibDisp&content_id=166.Kuttner, R. (2003, September 8).

The great American pension-fund robbery. BusinessWeek online. Retrieved January 24, 2009, from http://www.ibmemployee.com/PDFs/BW%20Online%20_%20September%208,%202003%20_%20The%20Great%20American%20Pension-Fund%20Robbery.pdf.