The biggest shortcoming of the FRS IP is the contribution rate. With a total contribution rate of just 6.3 percent (3 percent employee; 3.3 percent employer), the rate is, at best, no more than half of what is generally recognized to be an adequate contribution rate in a defined contribution retirement plan.
A total contribution rate of between 12 percent and 15 percent is accepted as necessary to reasonably meet lifetime income replacement goals when combined with Social Security and personal savings. Any retirement plan with a total contribution rate of just 6.3 percent will fail in achieving its primary goal— to provide a sufficient post-employment benefit.
Author(s): Richard Hiller
Publication Date: 26 March 2021
Publication Site: Reason