A report from the Employee Benefit Research Institute found that having a defined-benefit plan at age 65 reduces risk for boomers and Generation X workers by almost 12 percentage points.
For early boomers with no defined-benefit accruals, 67% are considered at risk; 41% of early boomers with some accruals are at risk. The advantage narrows for younger cohorts. Among late boomers with no accruals, 59% are at risk and 38% of those with some accruals are at risk. Among Gen X workers, 55% of those with no accruals are at risk, but 38% of those with some accruals are at risk.
Unsurprisingly, the advantage of a defined-benefit plan is felt more strongly by those with lower incomes. Eighty-six percent of households with no accrued savings in a defined-benefit plan are at risk of having inadequate income. For those with some accrual, 68% are at risk.
EBRI also studied the impact defined-contribution plans have on households that have a defined-benefit plan. “Even though the overall finding that the presence of a defined benefit accrual at age 65 reduces the at-risk percentage by 11.6 percentage points is quite impressive, this impact is undoubtedly muted to some extent by the interaction of defined contribution plan accumulations,” according to the report.
Households with no remaining years to contribute to their defined-contribution plan feel the impact of a defined-benefit accrual more keenly than those who have just a few more years left to contribute.
“It should be noted that this analysis does NOT attempt to do a comparison between the relative effectiveness of defined benefit vs. defined contribution plans,” according to the report. “However, it does show that when the value of a defined benefit plan is analyzed for those without any future eligibility in a defined contribution plan, the impact on the at-risk ratings increases to 23.6 percentage points.”
EBRI estimates that the percentage of private-sector employees who participate in employer-sponsored defined-benefit plans decreased to 15% in 2008 from 38% in 1979.
A 2010 study by EBRI found that almost half of boomers and Gen X workers were at risk of not having enough retirement income to cover basic expenses and uninsured health care costs.
A more recent study, released in June, found that the percentage of households with a 50%, 70% or 80% probability of having adequate retirement income increased as retirement was deferred beyond age 65, but that simply “working a few more years” wasn’t enough to secure a comfortable retirement.