In the debate between "defined-benefit" pension plans like social security and many other public and private corporate pensions and "defined-contribution" plans like 401-k's, IRA's, etc, the advocates of the former often argue that their plans are safer.

It certainly appears so on the surface. Defined-benefit plans typically guarantee the individual retiree a certain income (based on some formula of previous earnings). Defined-contribution plans, where people invest in assets like stocks and bonds, leave the individual at risk if their investments don't work out.

But this logic is a sort of fallacy of composition (much like Frank's recent post on too much choice). What's safer for the individual investor may not be safer for the whole group.

We should remember that social security (as we all know) suffers from tremendous risk related to demographic and productivity trends. Private defined-benefit pensions (often run by unions btw) are invested in, you guessed it, stocks and bonds, and suffer from the same risk at the group level as individual investors in 401-k's. In addition, such plans are at much greater risk of corruption (and even theft) by corporate, union, and public officials in charge of running them.

For example, Lucent wants to cut employee retirement benefits.