A new report from the Washington, D.C.-based Employee Benefit Research Institute (EBRI) suggests baby boomer and generation X households who have DB pension plans are more likely to be able to fund basic needs and uninsured health costs.
According to the non-partisan organization’s report, these households are 12% less likely to be “at risk” of running short of money in retirement.
The EBRI report finds that having a DB pension plan is particularly valuable for those within the lowest pre-retirement income levels. In that income category, 86% of households without any DB pension accruals are considered to be at risk of insufficient retirement income, compared with only 68% for low-income households with some DB accruals. The report also shows an “at-risk” reduction of nearly 20% for middle-income households that have some DB accrual, versus those that have none.
“The data show that defined benefit plans are tremendously important in achieving retirement income adequacy for baby boomers and gen Xers,” said Jack VanDerhei, EBRI research director and the report’s author. He noted that the percentage of private-sector workers in the U.S. participating in an employee-sponsored DB plan decreased from 38% in 1979 to 15% in 2008. VanDerhei also said that his research does not compare the relative effectiveness of DB versus DC plans such as a 401(k).
However, VanDerhei said his findings do demonstrate the value of a DB plan for those without any future eligibility in a DC plan.
EBRI’s analysis is based on its Retirement Security Projection Model (RSPM), which has been used previously to quantify the impact that eligibility for a DC plan has on reducing workers’ at-risk status. For this analysis, RSPM was modified to assume that all households retire when the oldest wage earner reaches age 65, and each household was split in terms of whether it retained a DB pension accrual at age 65 to assess the impact of these benefits on retirement income adequacy.