Why Did the NFL Need Replacement Refs?

We can all relax now, the replacement officials are gone, and the NFL referees have returned. The NFL and its officials have come to an agreement.  One of the main discussion points of the lockout was something we at Independent Actuaries are very familiar with–pension benefits. 

NFL referees are currently covered by a Defined Benefit (DB) plan, a retirement plan which guarantees a monthly retirement benefit based on earnings and years worked.  Keeping the DB plan was one of the central goals of the NFL Referees Association.  However, under the terms of the new agreement, the DB plan will remain open to current participants only through 2016, or until a referee earns 20 years of service, whichever comes first. At that point the DB plan will freeze benefits.

The DB plan will be replaced with a 401(k) plan. The 401(k) plan will provide new hires (and, beginning in 2017, all referees) an average contribution of $18,000 annually.  This amount will increase to more than $23,000 by 2019. Referees will also receive a match on their salary deferrals.

The change from a DB plan to a 401(k) plan shifts investment risk from the employer to the participant.  From what I have read, the switch is not a cost-saving move, but is meant to match a growing trend in America of offering 401(k) plans as opposed to DB plans.

After all of the national attention given to the replacement referees, which peaked with the Monday night game involving the Seahawks and Packers, I figured there would be a quick end to the lockout, and that the NFL would immediately cave to the referees’ demands before their product was further damaged. Looking at the change in pension benefits, though, it does not look to me like the NFL caved.  While most Americans would be jealous of an $18,000 annual employer contribution, a 401(k) plan does not provide the same level of retirement security as a DB plan.

If you’re a business owner contact Independent Actuaries to see what type of retirement plan is right for you and your employees.

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