The National Institute on Retirement Security on July 30, 2009, released a new study titled, The Pension Factor: Assessing the Role of Defined Benefit Plans in Reducing Elder Hardships.

The report finds defined benefit pensions, such as our own Washington State LEOFF 1 and LEOFF 2 retirement plans, besides being good for the members and their family, are a benefit to the community in general.

The full report is an interesting read and can be accessed in pdf format.

It states the recent turmoil in financial markets has substantially reduced the retirement savings of many workers and retirees alike.

This has heightened public concerns that many older American households will not accumulate sufficient retirement savings to meet their needs in retirement. Fortunately, about half of older American households count on income from a defined benefit (DB) pension.

The predictable monthly benefits provided by DB plans remain a source of security to these retired households, enabling millions of Americans to remain secure and independent in old age. This study analyzes the contribution of DB pensions to the economic security of older American households. Our findings indicate that DB pension income plays a vital role in reducing the risk of poverty and material hardships among older Americans. Rates of poverty among older households without DB pension income were approximately six times greater than the rate among older households with DB pension income.

Older households with DB pension income also were far less likely to experience food, shelter, and health care hardships. In addition, DB pension recipient households were less reliant on means]tested cash and non]cash public assistance.

While households with DB pension income generally fared better than households without pension income, DB pensions appear to have particularly improved the economic security of more vulnerable subpopulations of elder households.

Our analysis suggests that common gender and racial disparities in rates of poverty, material hardships, and dependence on public assistance are greatly diminished, and in some cases nearly eliminated, among households receiving DB pension income.

Even after controlling for a range of socio-demographic factors such as education, race, gender, and work history, we find that households with a pension fare better than those without. In other words, DB pensions appear to exert an independent, positive effect on older Americans economic well being an effect we call the “pension factor.”

This ”pension factor” has helped substantial numbers of older American households avoid material hardships associated with inadequate food, shelter, and health care and to avoid having to rely on public assistance. More specially, we estimate that in 2006, DB pension receipt among older American households was associated with:

  • 1.72 million fewer poor households and 2.97 million fewer near-poor households;
  • 560,000 fewer households experiencing a food hardship;
  • 380,000 fewer households experiencing a shelter hardship;
  • 320,000 fewer households experiencing a health care hardship;
  • 1.35 million fewer households receiving means-tested public assistance;
  • $7.3 billion in public assistance expenditures savings, representing about 8.5 percent of aggregate public assistance dollars received by all American households in 2006 for the same benefit programs. We calculated a savings of some $7.3 billion in public assistance expenditures in 2006, not counting Medicaid reimbursements for acute and long]term medical care, which can be attributed to receipt of DB pension income.

Our estimates of savings represent about 8.5 percent of aggregate public assistance dollars received by all American households in 2006 for the same benefit programs.

This amount is significant, particularly given the pressures on safety net programs during the current fiscal crises experienced at all levels of government throughout the country.