Pensions Cut Elder Poverty Dramatically: Study

Public sector employees fear health costs, retirement security

Worker talks with a man at a homeless shelter. (Photo: AP) Worker talks with a man at a homeless shelter. (Photo: AP)

In a time when both public- and private-sector jobs are increasingly insecure and defined benefit (DB) pension plans are becoming increasingly scarce, a study conducted by the National Institute on Retirement Security (NIRS) has found that the now somewhat old-fashioned concept of DB pensions are a major factor in keeping older Americans out of poverty. Meanwhile, public sector employees are less confident that they will be able to retire or afford health care in retirement.

In the report titled “The Pension Factor 2012: Assessing the Role of Defined Benefit Plans in Reducing Elder Economic Hardships,” an update of a similar study conducted in 2009, older households that did not receive DB pensions experienced rates of poverty approximately nine times greater than those among older households with DB pension income in 2010. That increased from a rate of six times greater in 2006.

The report, authored by Dr. Frank Porell, professor of gerontology at the University of Massachusetts-Boston, and Diane Oakley, executive director at NIRS, offered some other surprising revelations, even when corrected for such factors as education, work history, age, race, marital status and other elements that otherwise play a large role in determining whether a household will fall into poverty or not.

The savings to taxpayers from families able to avoid the need for public assistance, thanks to DB plans, was $7.9 billion. DB plans also reduced the disparity in income among households when categorized by gender or race, while households lacking DB plans experienced a much wider range of income—or the lack of it. And households in the northeast and Midwest, former bastions of manufacturing, were much more likely to receive DB funds than those in either the south or the west.

Perhaps not so surprising for a retirement income that is fixed in value was its importance to a generation that is now increasingly less likely to be offered it by an employer. The 2011 Towers Watson Retirement Attitudes Survey found that, between 2009 and 2011, workers under 40 citing their retirement program as a major influence on their accepting a job skyrocketed from 28% to 63%.

In addition, 51% of DB plan participants in 2011 cited that plan as a major factor in choosing their jobs. More than 75% of new hires cited their employer’s DB retirement plan as a major reason to stay on the job, with 85% hoping to remain at that employer till retirement. And workers who lost a DB plan don’t value their company’s retirement plan highly, and are least likely to want to stay with that employer till retirement.

In another report released by the Center for State and Local Government Excellence and the TIAA-CREF Institute, the 2012 Retirement Confidence Survey of the State and Local Government Workforce, only 19% of full-time public-sector workers are very confident that they will have enough income for retirement. And only 22% felt they’d be able to handle the costs of health care when they retire.

Worries extended to the need to work longer than they had hoped, with 57% expecting to postpone retirement and 72% expecting the need to continue to draw a paycheck even after they have retired.

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