DB retirement plans especially valuable to low-, middle-income workers: EBRI

Early boomers seeing greatest benefit
|hrreporter.com|Last Updated: 09/15/2011

Baby boomers and members of generation X with a defined benefit (DB) pension plan are overall almost 12 percentage points less likely to be at risk of running short of money for basic needs and uninsured health costs in retirement, according to a report by the Employee Benefit Research Institute (EBRI).

Having a DB pension plan is particularly valuable for those with the lowest income in both age groups, but also has a strong impact on reducing at-risk rates for those in the middle class, found the report.

Among those in the second- and third-income groups combined — covering middle-income workers — the combined relative at-risk reduction is almost 20 per cent.

“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 author of the report.

The percentage of private-sector workers participating in a DB pension plan decreased from 38 per cent in 1979 to 15 per cent in 2008, but these plans still cover millions of workers and have long been valued as an integral component of retirement income adequacy for those households that have one, said EBRI.

Demographic

The greatest impact is of a DB plan is on the early boomers. The percentage of households without any DB pension accruals considered to be at risk of insufficient retirement income is 67 per cent, compared with only 41 per cent for their counterparts with some DB accruals, found the report.

For late boomers the at-risk percentage is 59 per cent for those with no DB accruals versus 38 per cent for those with some defined benefit accruals.

The gap narrows even more for the gen-Xers — 55 per cent for those with no defined benefit accruals versus 38 per cent for those with some defined benefit accruals.

Income

By pre-retirement income level, the greatest DB advantage (as measured by the gap between the two at-risk percentages) is for the lowest-income quartile: the percentage of households without any DB pension accruals considered to be at risk of insufficient retirement income is 86 per cent, compared with only 68 per cent for their counterparts with some defined benefit accruals, said EBRI.

Demographic and income

By age group and pre-retirement income level, the greatest DB advantage for each group (as measured by the gap between the two at-risk percentages) is for those in the lowest-income quartile. The absolute difference for the lowest-income quartile is 20 percentage points for early boomers and 20.7 percentage points for the late boomers.

It decreases somewhat for gen-Xers but still decreases the at-risk rating for the lowest-income quartile in that cohort by 15.8 percentage points.

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