Pensions

Defined benefit pensions are employer-sponsored retirement plans that provide participants a guaranteed income in retirement, typically paid as a monthly benefit for life. Pensions typically are managed by employers who contribute assets to the plan, and those assets are invested on behalf of the participating workers.   

Importantly, defined benefit pensions:

• Offer stable retirement income that lasts throughout retirement.
• Provide nearly twice the benefit per dollar invested compared to individual savings plans due to higher returns, longevity pooling, and lower fees.
• Help incentivize employee retention and promote career longevity because they provide deferred rewards that last through an employee’s lifetime.
• Fuel economic output, especially in rural areas. Retiree spending of public and private sector pension benefits in 2022 generated $1.5 trillion in total economic output, supporting 7.1 million jobs across the nation.
• Bolster public finances via spending of benefits. In 2022, spending of pension benefits added $224.3 billion in tax revenue at the federal, state, and local levels.
• Provide equitable retirement income across various education levels than in savings-based retirement plans.
• Are highly popular among workers. More than three-fourths of Americans have a favorable view of pensions, and 77 percent agree that the disappearance of pensions makes it harder to achieve the American Dream.

Pensions were a core benefit commonly provided to non-college educated workers throughout much of the 20th century, particularly in manufacturing jobs. Today, these workers have difficultly saving adequately in individualized account plans like 401(k)s where saving is optional and financial pressures can lead to early withdrawals. While pensions help workers of all educational levels avoid poverty, they are most effective at mitigating poverty for middle class workers.

Access to pensions, however, has been declining for decades, particularly for private-sector workers.  This decline followed the introduction of defined contribution 401(k) plans, which were intended to supplement rather than replace pensions.  This shift away from pensions has had a harmful impact on Americans’ retirement readiness. For example, the typical Gen X households — the first generation to largely experience the shift away from pensions — only has saved only $40,000 for retirement.