New Retirement Study Reveals Good News for Louisiana Economy

A 2014 study by the National Institute on Retirement Security (NIRS), Measuring the Economic Impact of DB Pension Expenditures, reveals that benefits paid by state and local pension plans had a total impact of $6.1 billion on Louisiana's economy.

$3.0 billion in direct economic impacts were supported by retirees' initial expenditures, followed by an additional $1.9 billion in indirect impact resulting when these businesses purchased additional goods and services.

For more information about Louisiana, view the NIRS study.

Pension Plan Modification Provide Sustainability: Shifting From Pensions Not Optimal, Can Trigger Unintended Consequences

WASHINGTON, D.C., December 5, 2012 - Faced with financial pressures, 45 states have enacted defined benefit (DB) pension plan reforms since 2008 to achieve affordability, sustainability, and human resource goals rather than switching to 401(k) type defined contribution (DC) accounts. Closing a defined benefit pension plan can cost substantially more than adjusting an existing plan. Additionally, scaling back pensions can have destabilizing economic impacts, erode retirement security, and harm the workforce.

Download the Issue Brief here.

These findings are contained in a new research issue brief, "On the Right Track? Public Pension Reforms in the Wake of the Financial Crisis ," conducted by the National Institute on Retirement Security. It examines key factors that have contributed to private and public employers' pension decisions, and builds upon a 2008 analysis, "Look Before You Leap" documenting costs associated with closing a pension plan.

The research is consistent with recent U.S. Chamber of Commerce findings that many private employers remain committed to pensions as an important part of compensation package plans, and that pensions are an integral part of the national economy while provide retirement security.[1] Today, almost 30,000 single and multiemployer defined benefit plans cover roughly 44 million private sector plan participants. In the public sector, some 20 million participants have a pension benefit.

"The financial crisis has forced private and public sector employers to carefully re-examine all of their costs including funding of pension plans," said Diane Oakley, executive director of NIRS and report co-author. "There isn't a one-size-fits-all solution. So it's not surprising that state governments, like many of their large private sector counterparts, remain committed to DB pensions. States find that modifying existing pensions provides a sustainable solution when they see the steep costs of a wholesale shift to individual DC accounts like 401(k) plans."

"There is a disconnect in the retirement policy debate," remarked Nari Rhee, study co-author and NIRS manager of research. "The data reveal that most individual DC accounts are severely underfunded and can't do the job alone. Yet, these plans are positioned as the retirement solution despite the evidence that Americans are going to fall short in the income needed to pay basic expenses in retirement." Rhee explained, "Our research reveals that policymakers are carefully weighing the implications of a shift, and prudently enacting sustainability changes so they can continue to offer pensions."

In commenting on the report's findings, former Congressman Earl Pomeroy (D-ND) said, "Most states are taking a smart, pragmatic approach. State leaders know that pensions enable Americans to be self-sufficient in retirement while providing employers with a cost-efficient, important workforce management tool that stimulates the economy."

The most common public pension plan modifications that have been implemented are increased employee contributions; reduced DB benefits for new hires including changes to retirement ages; and cost of living adjustment reductions for retirees and existing workers. More specifically, the report finds:

• Distinct business and labor market dynamics and regulatory pressures led to the decline of pensions in the private sector that do not necessarily apply to governments.

• A policy of closing or freezing pensions and switching to DC accounts is not necessarily the best approach for government employers and taxpayers. Recognizing this, states are modifying their pensions to ensure long-term sustainability.

• Freezing or closing DB plans and shifting to DC-only accounts threatens workers' retirement security, with mid-career employees being the hardest hit.

• Because pensions play an important role in public sector compensation, freezing or closing DB plans and shifting to DC accounts may negatively affect the ability of public employers to recruit and retain qualified workers.

The full issue brief is available here.

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement including financial services firms, employee benefit plans, trade associations, and other retirement service providers. More information is available at www.nirsonline.org.

This post is from the NIRS Organization website. View it in original form here. 

New Research Examines Human Resource Impacts of Pensions

During Economic Downturn, Nearly All State & Local Employers Modified Pensions Rather Than Switching to Alternative Plan Designs

WASHINGTON, D.C., November 14, 2012 - A new research brief examines the workforce impacts of existing defined benefit (DB) pension plans to assess the likely effects of a switch to defined contribution (DC) individual accounts or cash balance plans. "The Great Recession: Pressures on Public Pensions, Employment Relations and Reforms" finds that:

• Public employers would attract a different labor force if they switched retirement benefits away from pensions. Public employees would be less committed to employers and thus less likely to invest in nontransferable skills that are critical to delivery of taxpayer services.

• Employee turnover would increase under individual DC accounts and cash balance plans. These types of retirement benefits no longer defer compensation into the future and thus offer fewer economic incentives for employees to stay with public employers.

• Moving from a pension structure would result in higher cost for public employers and employees because of higher investment and administrative costs for alternative retirement plans.

• Public employers and employees overwhelmingly choose to stay with pensions rather than moving to alternative benefits when faced with a choice, illustrating the high value of pensions to public sector employers and employees.

"The Wall Street crisis hurt all investors, including pension systems that saw drops in their funding levels," said Diane Oakley, executive director of the National Institute on Retirement Security. "As a result, policymakers in nearly every state examined and enacted large-scale reforms to their workforce retirement plans - and nearly every state and locale maintained its pension plan. The research finds that this outcome isn't surprising because private and public pensions have a strong track record of simultaneously meeting employers' recruitment and retention needs and employees' economic security needs," Oakley said.

Christian Weller, study co-author and public policy professor at the University of Massachusetts-Boston and senior fellow at the Center for American Progress said, "State and local budgets are under intense scrutiny. Spending on public employee retirement benefits in particular is caught in the crossfire of these fiscal and political debates." Weller continued, "There are some proposals for a radical switch from pensions to individual savings plans. Our research suggests that policymakers understand the value of existing pensions as recruitment and retention tools. They also are worried about the substantial costs of switching retirement plans. It is no surprise that policymakers generally rejected proposals to radically alter retirement benefits."

"The study underscores the key role of pensions as a human resource management tool," said Ilana Boivie, report co-author and research economist for the Communications Workers of America. "Employers in all sectors leverage pensions to reduce attrition of skilled employees. These employers are rewarded with better employee recruitment and retention. For example, 69% of employees with pensions say their retirement plan is an important reason to stay versus only 37% with DC plans. Also, employers with pensions have lower turnover rates ranging from 20 - 200% lower as compared to those employers with DC plans," Boivie explained.

The research brief is available here.

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement including financial services firms, employee benefit plans, trade associations, and other retirement service providers.  More information is available here.  

Poverty Risk Nearly Doubles for Older Americans Lacking Pensions, New Study Finds

Pension Income in 2010 Resulted in Public Assistance Savings of $7.9 Billion, 4.7 Million Fewer Households in Poverty or Near-Poverty

WASHINGTON, D.C., July 26, 2012 - Rates of poverty among older households lacking defined benefit (DB) pension income were approximately nine times greater than the rates among older households with DB  pension income in 2010, up from six times greater in 2006 a new study calculates. Older households with  lifetime pension income are far less likely to experience food, shelter, and health care hardship, and less reliant on public assistance. The data also indicate that pensions are a factor in preventing middle class Americans from slipping into poverty during retirement.

Download the full report and supporting PowerPoint here.

This report sounds an alarm bell for policymakers and taxpayers alike," said  Diane Oakley, NIRS executive director. "We've documented a substantial increased risk of elder poverty for Americans lacking pensions that coincides with an alarming decline of pension coverage. These findings couldn't come at a worse time. Some 75 million Baby Boomers are beginning to retire. Yet, less than half of older American households today can count on a modest pension income that will last for their lifetimes. Worse yet, the ongoing financial crisis has eroded individual retirement savings and home values."

Oakley continued, "Now, we're now staring at a future with older Americans - many of them middle class -  who may be unable to pay their basic bills and at risk of falling into poverty. There is a steep price to pay when older Americans can no longer be self-sufficient in retirement - either as increased public assistance costs to taxpayers or backsliding to a time with elder Americans living in poverty."     

Report co-author  Dr. Frank Porell said, "The analysis indicates pensions exert an independent, positive impact on older Americans' economic well-being - an effect we call  the 'pension factor.' This 'pension factor' is particularly strong for more vulnerable subpopulations of elder households. In fact, gender and racial disparities in poverty rates, material hardships, and public assistance rates are greatly diminished, and in some cases nearly disappear, among households receiving pension income. The bottom line is that households with a pension fare better than those without - even after controlling for socio-demographic factors such as education, race, gender, and work history," said Porell.  

Porell added, "In 2010, governments spent about $7.9 billion dollars less on public assistance to older households because of pension income. This represents about 6.4 percent of aggregate public assistance dollars received by all American households from similar benefit programs. These are substantial dollars, particularly in light of the growing financial pressure on government programs in the wake of the financial crisis." 

More specifically, the report estimates that in 2010, DB pension receipt among older American households was associated with:

• 4.7 million fewer poor and near-poor households.
• 460,000 fewer households that experienced a food insecurity hardship.
• 500,000 fewer households that experienced a shelter.
• 510,000 fewer households that experienced a health care.
• 1.22 million fewer households receiving means-tested public assistance. 

More broadly, the study also finds:

• a continued decrease in rates of DB pension income receipt likely related to more than three decades of declining DB plan participation rates among active employees.
• increasing numbers of older American workers will be entering retirement without the security of a pension.
• older households with pension income generally fared better during the recent economic turmoil relative to households without such income.
• income from pensions may be especially important to middle income American households.
• lower rates of DB pension receipt are found among older persons living in the West and South relative to other regions.
• pensions have helped many older minority and female-headed households escape poverty.

The analysis was conducted using the U.S. Census Bureau's Survey of Income Program Participation (SIPP) panels. The study sample included SIPP respondents age 60 years or older and all households with a head age 60 and older, who had records in both the Pension and Adult Well-Being topical modules of the survey. 

Additional data and analysis is available in the full research brief available at www.nirsonline.org.

The National Institute on Retirement Security is a non-profit organization established to contribute to informed policymaking by fostering a deep understanding of the value of retirement security to employees, employers, and the economy through national research and education programs. Located in Washington, D.C., NIRS has a diverse membership of organizations interested in retirement including financial services firms, employee benefit plans, trade associations, and other retirement service providers. 

Contact:           

Kelly Kenneally

202.457.8190 o

202.256.1445 m

kkenneally at nirsonline.org