Building Blocks Plan Design recognizes that many of the features that we associate with defined benefit and defined contribution are not inherently part of one or the other. Annuity income can be delivered from a "DC" plan and a "DB" plan can be based on an account balance. The building blocks approach discards the DB and DC labels and breaks retirement plans down into 10 essential components that can help achieve specific objectives. The 10 components are:
Plan structure
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Benefit formula vs. Account balance
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Annuity benefit vs. Lump sum benefit
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Target retirement ages vs. No target retirement
Value allocation
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Low value for younger employees vs. High value for younger employees
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Low value for older employees vs. High value for older employees
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Not related to individual performance vs. Related to individual performance
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Financial and Investment Structure
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Professional asset allocation vs. Employee asset allocation
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Employer investment risk vs. Employee investment risk
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No employee contributions vs. Employee contributions
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Not related to company performance vs. related to company performance
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Each of the building blocks has specific objectives associated with either option. Some of the building blocks are either/or and some of them allow for a range of provisions that meet either option to a greater or lesser degree. Unfortunately the original materials developed with the Building Blocks Plan Design approach are no longer available, but this 1999 article in HR Magazine provides more insight about the approach.
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