Workers who reach 65 with money accrued in a defined benefit plan are far less likely to run short of money for essential expenses and health care costs than those who don't have such a plan, according to research from the Employee Benefit Research Institute.

Although most workers do not have an active defined benefit pension plan anymore, those who have accrued money in a defined benefit plan and retain it until age 65 reduce their risk of running out of money after they retire by nearly 12% points, EBRI says. But the percentage of workers participating in a defined benefit pension plan has been declining for years, dropping from 38% in 1979 to 15% in 2008.

However financial planners should note that workers with some accrual in a defined benefit plan at 65 are 11.6 percentage points less likely to run short of money for essential expenses and health care costs than those with no defined benefit plan available at all, says EBRI, a not-for-profit research institute in Washington D.C. that focuses on health, savings, retirement and economic issues.

The percentages are higher for those in the lower income bracket than those at the upper level, but it still has an impact on the middle class, the research shows.

"The data show that defined benefit plans are tremendously important in achieving retirement income adequacy for baby boomers and Gen Xers," says Jack VanDerhei, EBRI research director and author of the report.

Although defined benefit plans are less available today, "these plans still cover millions of U.S. workers and have long been valued as an integral component of retirement income adequacy for their households," the report says.

The lowest-income quartile of baby boomers have a 20 percentage point increase in their chances of having enough money for essentials in retirement if they have money from a defined benefit plan. For Gen Xers it is a 15.8 percentage point increase.

The report does not compare the likelihood of having enough money for those who have defined benefit versus defined contribution plans.  "However, it does show that when the value of a defined benefit plan is analyzed for those without future eligibility in a defined contribution plan, the impact on the at-risk ratings increases to 23.6 percentage points," according to the report.

"In other words, for those households without future years of defined contribution eligibility, the presence of a defined benefit accrual at age 65 is sufficient to save nearly one in four of those households in a baby boom and Gen X cohort from becoming 'at risk' of running short on money in retirement for basic expenses and uninsured medical expenses, the report concludes.


-Karen DeMasters