This week we’ve been documenting the dismal state of retirement security in the United States and the ways in which governments at both the state and federal levels contribute to the retirement security crisis. As National Retirement Security Week, or, as we’re calling it, National Retirement (In)Security Week, comes to a close, we want to focus on what does provide real retirement security to working families: defined benefit pensions.
Pensions provide a secure and dignified retirement because they are guaranteed for life. There is no chance of outliving your pension. Additionally, retirees know exactly how much they are going to get each month. This gives peace of mind so retirees can plan their spending once they are on a fixed income.
Pensions also protect working families from the whims of the financial markets. If the stock market crashes a month before your planned retirement, you are protected with a pension. This is because pension plans pool risk collectively among all the plan participants. It’s not all on one individual. Pension plans also operate on an infinite time horizon and can recover their investment losses in the years ahead. Individual investors rarely have that ability.
Pensions also provide real retirement security to less-advantaged members of society. Low-income working Americans do far better with a pension than with a 401(k). Low-income workers participate more in pension plans than 401(k)s and the wealth is shared more equitably among participants in pension plans than 401(k) plans. For women, who are far more likely to be in poverty in retirement than men, pensions provide a reliable source of income that reduces the likelihood of being in poverty. And for black Americans, who face extremely low levels of wealth in general, they are almost as likely to have a defined benefit pension as white Americans. This access to the security of pensions is vital for a group of workers who often face numerous obstacles to saving for retirement.
Finally, when workers are given a choice, they overwhelmingly choose pensions. In eight states where public employees can choose between a traditional pension and a 401(k)-style plan, it’s not even close: in six of the eight states, over 80 percent of workers chose pensions. It’s clear that public employees recognize the value of a pension and the retirement security it provides.
As National Retirement (In)Security Week comes to a close, it is important to remember that there is still a source of retirement security for working families. Pensions remain the best plan for a secure and dignified retirement. This is why we at NPPC fight every day to protect pensions. Will you join us?