As to that long explanation quoted above the average return of the S&P is used to make a point to the gullible. No investment is ever looked at in this way, every return number used for comparison is annualized.

The annualized number is the average return of the growth of assets from what you invested ($10,000 in his example) to the final value. It is the average annualized return that you look at to calculate the growth of your money not the average return. I had to laugh when he said the final asset value isn't important. That being said volatility is a great destroyer of wealth.

On a couple of the other pieces. Giving your money to the government is a bad idea. You can't sue them if they do a poor job. If it is a pension style of account then the burden of underfunding/losses is placed on the taxpayer and we have seen the job they are doing ergo social security. You are also giving them a pool of assets that they may be tempted to "borrow" from in order to run the government.

Employers hate DB plans. Employees love them. Them employer has to project consistent earnings on the assets and then is responsible for all losses and shortfalls. The actuarial assumptions on growth are usually around 7-8% and there are no conservative investment options to get the plans there without significant risk of losses (which the employer has to cover). Most DB plans have not hit their return numbers in a long time.

They other problem employers have with DB plans is that the benefits are based on the employee's salary (most are averages of the last 3-5 years). Typically employees are earning the most in their career right before they retire. Say you have an employee who has earned around 50k for most of their career (25 years) who gets promoted and earns 100k the last several years. You (the employer) have made 25 years of pension contributions based on providing 50k of retirement income. Now that the employee is making 100k you have to make huge contributions for them to make up for 25 years at the wrong contribution amount (50k).

Basically traditional pensions are not options employers will ever use anymore (cash balance plans being the exceptions).

What is more fair, that the employer should have to take responsibility for the employees retirement or that the employee should have to take responsibility for themselves (a la 401(k))? There are huge problems with most 401(k)s but they are still the best answer.

Every time I have looked at anything that says no market risk etc it is an insurance product. Insurance products will always have the highest and most hidden fees in the retirement industry.