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How Much is Your Pension Saving your City?

Defined benefit plans keep people above the poverty line in retirement, saving federal, state, and local government on public assistance expenditures.
When the subject of police, firefighter, and municipal employees annual salaries come up for debate at city council, the discussions focus on how much budget should be dedicated to their salary, health care, and pension contributions.

But imagine a different world, where the debate would focus on how much the city might save in future public assistance expenditures by making their complete pension contribution to employees today. Wouldnt that be a much healthier discussion?

Yes, it would be, if more people knew the findings from the National Institute of Retirement Security (NIRS) research. That organization used U.S. Census Bureau data to calculate that households without income from defined benefit plans suffered much higher rates of poverty in retirement than those who did have DB plans.

And NIRS estimated that, in 2010, 1.22 million fewer households received means-tested public assistance because of their DB income. NIRS said that, in dollar terms, governments saved $7.9 billion they would otherwise have paid as public assistance because of defined benefit pension income.

The moral to the story is that defined benefit pension benefits ultimately save federal, state, and local governments from having to provide some public assistance payments to the elderly in their jurisdictions. To learn more, look up the NIRS report titled The Pension Factor 2012, which details its calculations for these findings.

It may be that if more city officials knew these facts they might not be so inclined to switch their employees retirement plans to defined contribution plans. And they might understand their citys pension contributions to be a Pay now, or pay more later type of trade-off.

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