Rising income inequality is a byproduct of pension reform actions that have made people rely on defined contribution plans rather than defined benefit plans.
So says research from the National Conference on Public Employee Retirement Systems, which made the point in a paper titled “Income Inequality: Hidden Economic Cost of Prevailing Approaches to Pension Reforms.”
The paper found that benefit cuts, larger employee contributions and conversion of DB plans into DC plans had a negative impact, not just on plan participants and their beneficiaries but on local economies, as well.
In analyzing the relationship between pension changes and income inequality at national and state levels, researchers found that “that income inequality was highly co-related with the trend toward conversion of DB into DC plans.”
Analysis also found that because of the high correlation between income inequality and the percentage of the workforce covered by DB plans, the lower the percentage of people covered by DB plans, the higher was income inequality. There were other factors, of course, in causing income inequality to rise, including “changes in the percentage of the workforce in unions, marginal (top income) tax rates, and the rate of investment in public education.”