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The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty?

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  • Natalia S. Orlova
  • Matthew S. Rutledge
  • April Yanyuan Wu

Abstract

The transition from defined benefit (DB) to defined contribution (DC) pension plans has left workers forced to make choices that may decrease their financial resources in retirement: taking lump-sum distributions before retirement that divert funds that could support consumption in retirement, not annuitizing DC benefits, or choosing a single-life annuity over a joint-and-survivor option so that their surviving spouses are left susceptible to income loss. This study examines pension coverage, lump-sum distributions, annuitization, and annuity life options among Health and Retirement Study households observed at ages 65-69 and 75-79 and relates these pension provisions to poverty incidence and the risk of falling into poverty at older ages. The results indicate that households with pensions that are annuitized with the joint-and-survivor life option and that do not take lump-sum distributions before age 55 are best able to avoid income and asset poverty. The results emphasize the importance of making DC plans operate more like DB plans, because the opportunities for these poor financial choices are likely only to grow given the reliance on DC plans as the sole source of employer pension income for future cohorts of retirees.

Suggested Citation

  • Natalia S. Orlova & Matthew S. Rutledge & April Yanyuan Wu, 2015. "The Transition from Defined Benefit to Defined Contribution Pensions: Does It Influence Elderly Poverty?," Working Papers, Center for Retirement Research at Boston College wp2015-17, Center for Retirement Research.
    • Handle: RePEc:crr:crrwps:wp2015-17
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    Cited by:

    1. Divya Anantharaman & Feng Gao & Hariom Manchiraju, 2022. "Does social responsibility begin at home? The relation between firms’ pension policies and corporate social responsibility (CSR) activities," Review of Accounting Studies, Springer, vol. 27(1), pages 76-121, March.

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