John E. Nienstedt, President, Competitive Edge Research & Communication
About half the City's non-retirees say they are not good at retirement planning and two-thirds do not know what defined benefit and defined contribution retirement plans are. But that does not stop most residents – once they are made aware of the distinctions between the types of plans – from weighing in on whether the City should shift its employees from a defined benefit plan to a defined contribution plan. About half say the change should be made (32% strongly) while only 37% think the defined benefit plan should remain. One reason a defined contribution plan is supported: 40% now expect to rely on defined contribution plans or IRAs in their retirement; only 12% rely on defined benefit plans.
Retirement Planning
Most residents rate themselves as good or only fair at handling their retirement planning. However, one-in-five San Diegans give themselves Ds or Fs, and whether or not one is likely to be a good planner hinges on a number of factors. Retirees certainly tend to believe they did a better job – in hindsight – than non-retirees currently feel they are doing. That is perhaps heartening for boomers who are on the cusp of retirement, as it suggests that worries about providing for retirement can be overblown. On the other hand, it could suggest that the current generation of retirees either has more modest expectations or simply did a good – even great -- job preparing for the day when they would quit working.
One thing that is clear from the data: the more affluent among us tend to believe they are doing better when it comes to retirement planning. As the chart shows, those earning more are much more likely to give themselves high grades, while roughly one quarter of those making less than $80,000 say they are doing a poor job or failing entirely.
Before we put this down as simply a case of the rich getting richer, the data also show that those who are registered to vote -- regardless of their income level – believe they have done a better job in planning for retirement. This suggests that civic involvement translates somewhat into a more optimistic appraisal of retirement planning. We also find that those who are more educated and who are more ideologically conservative, regardless of income level, give themselves much higher marks when it comes to retirement planning.
Defined Benefit and Defined Contribution Plans... Huh?
We asked respondents to define, in their own words, defined benefit and, separately, defined contribution plans. Most respondents were at a loss. Only 15% know the basics of both, while two-thirds are either unsure or do not know what either plan does. Another 19% gave a right answer for one and a wrong answer for the other. Anyway those results are sliced, there is a lot of ignorance of the topic.
We find less ignorance when we query homeowners and upper income earners. Those who give themselves higher marks for retirement planning are also less likely to get the answers wrong. But even the City's most knowledgeable segment – homeowners who earn more than $150,000 annually (a mere 5% of the population) – gave both correct answers only 46% of the time and 38% were wrong on both counts.
Policy makers and politicians should realize that pension plans are “inside baseball” to the vast majority of people.
We then defined the two types of plans for the respondents before asking retirees what their main source of retirement income is and non-retirees what their main source of income is going to be.
Defined Contribution Plans and IRAs are on the Rise
Among retired folks, more say they are in defined benefit plans rather than defined contribution plans. However, 56% of those currently in the workforce labor for companies which provide defined contribution plans and only 40% have defined benefit plans. This, combined with the fact that only 12% now expect defined benefit plans to provide for their retirement income, tracks with national studies that indicate a shift away from defined benefit and toward defined contribution plans.
Breaking respondents down by demographics also shows important differences. Young women comprise the group most likely to derive most of their retirement income from defined contribution plans and IRAs. On the other hand, Democrats over the age of 64 (regardless of gender) are the least likely to use those vehicles.
While this generational change is happening, one cannot ignore the political aspect. The survey shows that Democratic males are five times more likely to rely on defined benefit plans than are others.
Support for Shifting City Employees to a Defined Contribution Plan
We next asked about the City's retirement plan:
Q. San Diego City employees participate in a defined benefit plan. (Opinions were rotated) Some people argue... that the City should keep employees in a defined benefit plan because most public sector employers offer such a plan, the City needs to attract good employees and because the employees have in the past given up pay raises to make sure their pensions were increased.
Other people argue... that the City should shift to a defined contribution plan because defined benefit plans are unfair to taxpayers since those plans promise to pay the retiree even when times are lean, because most people in the private sector no longer have defined benefit plans, and because defined contribution plans are fairer to younger employees and those employees that only work for the City for a few years.
Do you believe the City should keep its employees in a defined benefit plan or should it shift them to a defined contribution plan?
%
Keep defined benefit, strongly
19.0
Keep defined benefit, somewhat
18.3
Shift to defined contribution plan, somewhat
18.4
Shift to defined contribution plan, strongly
31.5
Unsure (Not Read) 12.9
The most important factor in these results is the feeling that, “if I don't get a defined benefit plan, neither should City employees.” Sixty-five percent who plan on relying on a defined contribution plan or IRA say they would support the City's shift to a defined contribution plan. Just 38% of respondents who rely on defined benefit plans feel the same way. In fact, 56% in the latter group say the City should keep its current system. Since the IRA/defined contribution segment substantially outweighs the defined benefit group, overall public opinion favors the shift.
Partisanship plays an important secondary role here as Democrats tend to be reluctant to make the shift, though a large minority do support going to a defined contribution plan. Republicans are generally supportive and staunch GOPers are downright eager to switch the City's retirement plans.
It also appears that San Diego would not be having this discussion if it were not facing its current difficulties. Shifting plans gets huge support from folks who are focused on the City's finances. This strongly suggests the time is now for supporters of the change to act.
One seeming paradox: the study shows that those who think San Diego's financial trend is getting a lot worse tend to oppose switching to a defined contribution plan. Why is this? Analysis suggests it is because the discontent of this small group (which comprises just 11% of the population) arises largely from a distrust of the moves made by the current administration and City Council. Their opposition to a defined contribution plan reflects a general unease with decisions being made by local government. The flip side to this is that those who approve of the job Mayor Sanders and/or the City Council are doing are much more supportive of switching to a defined contribution plan.
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