Some pension program changes, such as the shift to defined
contribution plans from defined benefit plans, might be widening the income gap
and dampening economic growth, said a new report from the National Conference
on Public Employee Retirement Systems. There are conversations about income and
equality, but few touch on the treatment of pensioners and how that contributes
to income inequality, said Hank Kim, Washington-based, executive director and
counsel at NCPERS and co-author of the report.
In the private sector, there has been a shift to DC plans
from DB plans. Between 1975 and 2011, the number of private sector DB plans
declined by 57% and the number of employees covered by DB plans declined 10%,
NCPERS’ research found. While DB to DC conversion is less common in the public
sector, there are other changes — benefit reductions and increased employee
contributions — that increase income inequality and hinder economic growth,
according to the NCPERS report.
The report further examined the relationship between income
inequality and economic growth, and found that an increase in income inequality
decreases economic growth. “When inequality – the ratio of the top and bottom
quintiles – increases by one … it decreases the state’s economic growth by 18%,
the report found.
Between 2000 and 2013, 34 states increased employee
contributions to pension plans, 38 instituted higher age and service
requirements, 30 reduced cost-of-living adjustments and 18 took steps to
convert to a defined contribution program, according to the National Conference
of State Legislatures, cited by NCPERS in its report.
The NCPERS report pointed to a 2012 study from the National
Institute on Retirement Security, which found that DB plans support 6.5 million
jobs and $1 trillion in economic output. NIRS also found that every dollar paid
in pension benefits supports $2.37 in economic output.
The report, “Income Inequality: Hidden Economic Cost of
Prevailing Approaches to Pension Reform,” reviews pension changes, income
inequality and economic growth from the 1980s to 2000s and is available online. A breakout of pension changes by state is also
available as part of the report.
Click
here to
access the full article on Pensions & Investments.