All of these activities make financial markets more complete, and thus enhance their efficiency. But how do defined-benefit plans aid employers? They can serve as a powerful tool for attracting and retaining staff. And, if they function well, defined-benefit plans can eliminate the risk of employees retiring with very low incomes.
But defined-benefit plans represent the transfer of a lot of risk to the plan sponsors. And for some sponsors, the liability associated with a defined-benefit plan can dwarf the sponsors' net worth. So for employees, employers, and society as a whole to fully realize the benefits of defined-benefit plans, three conditions must be met.