Green DB is an approach to designing and managing a defined benefit pension program so it is low risk and cost effective. "Green" is meant to convey the concept of sustainability with reduced waste. There is too much waste in the traditional DB plan design as risk is taken on without any compensatory benefit. Green DB has the following characteristics:
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DB as a moderate base benefit with DC as a supplement – DB programs should be career average or fixed dollar benefit providing a base of guaranteed income focused on covering essential expenses; there’s no reason why high paid individuals should get a large percentage of their income replaced with a defined benefit because the guaranteed income will be used for discretionary expenses not retirement security; higher income individuals are responsible for customizing their own retirement security through participation in a defined contribution program. From an economic science standpoint, the marginal benefit from guaranteed income decreases as wealth and income increase, so focusing the expensive DB benefit on lower levels of income provides the most retirement security for the cost.
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Longevity pooling – DB plans should not pay lump sums, except for de minimus amounts meant to simplify administration. Annuity payments are at least 20% more financially efficient in delivering retirement security as described here.
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Liability-driven investing – Retiree liabilities should always be funded and matched with assets in order to minimize the potential for deficits and risk to grow beyond the financial resources of the plan sponsor. As long as risk (return-seeking investments and deficits) is constrained to the active population, it will always be consistent with the financial resources of the plan sponsor. More on demographic-based investing is found here.
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Central administration – administration is more cost effective if it is pooled with an organization that focuses on that competency, especially if they only have to handle a limited set of plan designs.
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The Green DB concept is trademarked by one of my former employers.