DB Pensions Provide Poverty Buffer


A recent national study cast a spotlight on the importance of defined benefit (DB) pensions like the one administered by NYSTRS. According to the study, without income from these pensions, the number of older households in poverty would increase by almost 20% nationwide.

The January 2020 study, “Examining the Nest Egg: The Sources of Retirement Income for Older Americans,” conducted by the National Institute on Retirement Security (NIRS), analyzed national data from two 2014 surveys regarding retirees’ sources of income and how that income helps retirees avoid poverty and material hardship.

While retirement experts say the most security comes from the so-called “three-legged stool” of retirement savings – Social Security, a defined benefit pension and individual savings such as a defined contribution plan or IRA – only 6.8% of retirees have income from all three sources, according to the findings.

Besides Social Security, defined benefit pensions are a key factor serving as a cushion against poverty among retirees, the study found. Without income from pensions, the number of older households in 2013 receiving public assistance would have increased to more than four million households. In addition, the number of older persons receiving Medicaid would have increased by more than 15%, the study said.

As a result, the combined costs for public assistance and Medicaid benefits to older households would have increased by almost $13.5 billion, the study said. In contrast, income from defined contribution plans like 401(k)s have a much smaller impact, the study said.

While protecting and expanding Social Security should be a top priority, “Social Security alone is not enough to provide a secure retirement,” said NIRS Executive Director Dan Doonan. “It is clear from the data that pensions serve an important function in keeping working families in the middle class in retirement, more so than DC (defined contribution) accounts that disproportionately benefit higher income Americans.”

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