Retirees aren't the only ones who benefit from receiving a defined-benefit pension; the plans help curtail government spending.
Retirees aren't the only ones who benefit from receiving a defined-benefit pension; the plans help curtail government spending.
Defined-benefit pensions, which provide retirees with steady income for the remainder of their lives, are becoming a thing of the past as employers use defined-contribution plans and place more retirement savings responsibility on workers.
But those income payments are a major factor behind keeping older American households out of poverty and less reliant on public assistance, according to research released Thursday by the National Institute on Retirement Security, a nonpartisan research organization.
“Defined-benefit income is especially valuable in keeping middle-class families in the middle class when they retire,” said Diane Oakley, executive director of the NIRS.
According to NIRS' analysis of 2010 Census data of individuals over 60, Americans' receipt of pension income was associated with 4.7 million fewer households that were living at or close to the federal poverty line, and 1.2 million fewer households receiving means-tested public assistance, including Supplemental Security Income.
Excluding Medicaid reimbursements for acute and long-term medical care, the NIRS estimates that in 2010, governments saved $7.9 billion on public assistance to older households, thanks to their defined-benefit pension plans.
More households without pension income found themselves closer to the federal poverty level, as an analysis of 20.4 million older households without pensions showed 15.5% of them were “poor,” meaning they had annual income that was below the 2010 poverty threshold of $10,458 in annual income for single households or $14,602 for couples.
Fully 31.2% of older households without pension income were classified as “near poor,” or with income less than or equal to 200% of the federal poverty level threshold.
In comparison, a study of some 14.9 million households with pension income showed that 1.7% of them were poor and 14.7% were near poor.
Further, households without pensions experienced greater material hardships with respect to health care, shelter and food, according to the NIRS' analysis. Missing meals or inability to afford a balanced meal denotes a food hardship, while inability to cover utilities, rent or mortgage fell under the shelter hardship category. Health care hardships included skipping needed doctor or dentist visits.
Indeed, 8.2% of households without pensions encountered a food hardship, while 8% had a shelter hardship and 9% a health care hardship. In comparison, those receiving pension payments had lower rates of experience with these difficulties: 3.5% had a food hardship, 3% had a shelter hardship and 4.3% had a health care hardship.
Though gender and race gaps existed within these stats — greater percentages of women and minorities experienced these difficulties — defined-benefit pensions helped shrink them.
For example, fully 7% of men without pensions experienced a shelter hardship, compared with 8.8% of women without pensions. For those with pensions, those figures dropped to 3% for both men and women.
As for differences between races, 6.3% of white households without pensions had food hardships, compared with 15.9% of African-American households. The gap for that statistic shrunk significantly for households with pensions: 2.8% for whites and 7.7% for blacks.
“Many of the gender and race disparities are either substantially reduced or eliminated among households with defined-benefit pensions,” said Frank Porell, co-author of the report and professor of gerontology at the University of Massachusetts.
dmercado@investmentnews.com
